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Hindenburg Research Challenges SEBI’s Allegations on Adani Short Bets

US short-seller Hindenburg Research, known for its allegations against the Adani Group involving stock market manipulation and accounting fraud, announced on Tuesday that it received a show cause notice from India’s capital market regulator, SEBI, regarding alleged violations related to its bets against the conglomerate’s stocks

Hindenburg’s Response

Hindenburg criticized the notice, calling it “nonsense” and claiming it was “concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.” The New York-based firm stated that when it released its report alleging “brazen stock manipulation and accounting fraud scheme over the course of decades” at the Adani group, it disclosed its short position on Adani stocks, anticipating a fall in their value.

Involvement of Kotak Bank

The firm revealed that Kotak Bank created and managed an offshore fund structure used by an unnamed “investor partner” to short the conglomerate’s stocks. Despite this, Hindenburg noted that the trade may “barely come out above breakeven.” The firm made USD 4.1 million in gross revenue from “gains related to Adani shorts from that investor relationship” and just USD 31,000 from its short position on the conglomerate’s US bonds.

Adani Group’s Denials

The Adani group has consistently denied all allegations. Hindenburg noted that after a 1.5-year investigation, SEBI identified no factual inaccuracies in their research but objected to terms like “scandal” and quoted statements alleging SEBI’s corruption and collusion with conglomerates like Adani.

Clarifications from Hindenburg

Hindenburg emphasized that it did not collaborate with multiple firms to short Adani stocks, contrary to some claims. It maintained that it had only one investor partner and may barely break even on the Adani short, net of costs. The firm expressed pride in its work on Adani, despite it not being financially or personally beneficial.

Details of SEBI’s Notice

Hindenburg reported receiving an email from SEBI on June 27, followed by a show cause notice outlining suspected regulatory violations. The firm argued that Adani has not addressed the allegations in their report, instead offering blanket denials. Hindenburg’s January 2023 report detailed evidence of a network of offshore shell entities controlled by Gautam Adani’s brother, Vinod Adani, and associates, highlighting how billions were moved through these entities without related-party disclosures.

SEBI’s Claims

The SEBI notice seemed to suggest that Hindenburg’s disclosed investment stance was secretive or insidious, advancing novel legal arguments to claim jurisdiction over the US-based firm, which has no Indian entities, employees, consultants, or operations. SEBI argued that the report’s disclaimers were misleading as Hindenburg was “indirectly participating in the Indian securities market.”

Omission of Kotak Bank

Hindenburg speculated that SEBI’s failure to mention Kotak Bank or its board members might be an attempt to shield another powerful Indian businessman from scrutiny, a role SEBI appears to embrace, according to the firm.

With inputs from Agency

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