India’s securities regulator has accused Hindenburg of colluding with another entity to help it short-sell Adani Group.
Hindenburg Research has denied allegations by India’s securities regulator that it collaborated with a U.S. asset manager to use non-public information to set up a short bet against Adani Group last year, which, if proven, would violate the country’s rules.
Hindenburg on Monday posted on its website a copy of a 46-page “show cause” notice from the Securities and Exchange Board of India (SEBI) outlining the allegations in the latest twist in a saga that began last year when the U.S.-based short seller alleged improper business dealings by Adani.
The notice said six entities – including Hindenburg, Kingdon Capital Management and a Mauritius-based trading fund set up by Kotak Mahindra Bank – had violated certain rules of the Prevention of Fraudulent and Unfair Trade Practices Regulations. Hindenburg dismissed the notice in a statement as “absurd.”
Kingdon did not respond to an emailed request for comment from Reuters news agency on Tuesday. Hindenburg’s statement did not mention its relationship with Kingdon and did not respond to an email requesting comment.
“SEBI has neglected its responsibility, apparently doing more to protect those who commit fraud than to protect the investors who are victims of it,” Hindenburg said in his statement on the notice, the authenticity of which two SEBI sources with direct knowledge of the matter confirmed to Reuters.
SEBI said in the notice that it received information from or through the US Securities and Exchange Commission (SEC) during the course of its investigation.
Adani, which has consistently denied Hindenburg’s allegations, has suffered a loss of up to $150 billion in combined market value after the report, but its stock price has since recovered to the same levels as before.
SEBI did not respond to a request for comment Tuesday on Hindenburg’s statement or the notice. If proven, the alleged violations could result in financial penalties and the disgorgement of any gains deemed illegal.
Hindenburg said in its statement that it made $4.1 million in gross revenue from “gains related to Adani’s short positions arising from this investor relationship” and only $31,000 from its short position in Adani’s U.S. bonds. It did not name the investor.
“It was a tiny position,” said Hindenburg, whose response sheds some light on his short position in Adani, which has puzzled other investors because Indian securities rules make it difficult for foreigners to bet against Indian companies.
SEBI Allegations
SEBI alleges that Hindenburg collaborated with its client Kingdon Capital Management by providing a draft of its report on the Adani Group before it was made public.
Mark Kingdon, owner and founder of Kingdon Capital, then set up a fund that could trade Indian stocks, known as the K India Opportunities Fund, according to SEBI. The fund took short positions in Adani Group shares from January 10 to January 20, 2023, five days before the Hindenburg report was released.
Founded in 1983, Kingdon had $639.2 million in assets under management as of January, according to a securities filing with the SEC.
Kingdon runs two strategies: a long-short global equity strategy, which can also invest opportunistically in credit, government securities, commodities and currencies, and a long-short strategy focused on health care, according to the filing.
Hindenburg said a Mauritius-registered unit of Indian bank Kotak Mahindra created and oversaw an offshore fund structure used by its “investor partner” to bet against Adani’s shares.
Kotak Mahindra Bank said in a stock exchange statement released on Tuesday evening that neither K India Opportunities Fund nor Kotak Mahindra International were aware that Kingdon’s entities had any association with Hindenburg.
The bank said it had received notice of allegations from the regulator, adding that no regulatory action had been taken against the fund.
Shares of Kotak Mahindra Bank fell as much as 3.93% on Tuesday.
