The showdown between Adani Group and US based investment research firm Hindenburg Research has continued to escalate ever since Hindenburg released a report alleging Adani’s involvement in “manipulation and accounting fraud”. Following this, Gautam Adani’s net worth plunged significantly after a sharp fall in bonds and stocks of the seven listed Adani group companies. According to Bloomberg Billionaires Index, Gautam Adani lost about $6 billion (around Rs 48,600 crore), down nearly 5 per cent, in a day and his net worth currently stands at $113 billion as of January 26, 2023. On Thursday, Hindenburg Research responded to Adani Group’s threat of legal action, saying it stands by its report.
“Regarding the company’s threats of legal action, to be clear, we would welcome it. We fully stand by our report and believe any legal action taken against us would be meritless,” Hindenburg Research said on Twitter. Hindenburg, in its report, has said that it has taken a short position in Adani Group Companies through US-traded bonds and non-Indian-traded derivative instruments. So, what really is Hindenburg Research and what does it do? How did it come into being? And what has been its track record over the past few years?
What’s Hindenburg Research?
Hindenburg Research was founded by Nate Anderson, CFA, CAIA, in 2017. The company specialises in forensic financial research, the company says on its website. It has experience in the investment management industry spanning decades, with a historical focus on equity, credit, and derivatives analysis, it further adds. “While we use fundamental analysis to aid our investment decision-making, we believe the most impactful research results from uncovering hard-to-find information from atypical sources,” the website says.
A Financial Times article from June 2021 said that Nate Anderson lived in Jerusalem before returning to the United States, where he worked as a consultant with a financial software company called FactSet. Later, he joined a broker dealer firm in Washington DC and New York. Before launching the research company, Andersen had also worked with Harry Markopolos, who had flagged Bernie Madoff’s Ponzi scheme.
The company’s name is based on the Hindenburg tragedy wherein a German passenger airship caught fire killing 35 people. “We view the Hindenburg as the epitome of a totally man-made, totally avoidable disaster. Almost 100 people were loaded onto a balloon filled with the most flammable element in the universe. This was despite dozens of earlier hydrogen-based aircraft meeting with similar fates. Nonetheless, the operators of the Hindenburg forged ahead, adopting the oft-cited Wall Street maxim of “this time is different,” the company says on its website.
“We look for similar man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims,” it adds.
Companies Hindenburg has written about
Previously, Hindenburg had released reports on companies like Nikola, WINS Finance, Genius Brands, China Metal Resources Utilization, SC Worx, HF Foods, Riot Blockchain and others.
The report titled ‘Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America’ was released in September, 2020 which called out a ‘vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors’. Following this, Nikola founder and executive chairman Trevor Milton had resigned from the company.
The WINS Finance report was released in June 2020 which pointed out that ‘a company subsidiary in China was subject to a RMB 350 million asset freeze which had not been disclosed to US investors. About four months after the report, in October 2020, NASDAQ delisted WINS ‘specifically due to the undisclosed asset freeze we identified’.
In June 2020, Hindenburg wrote that Genius Brands, then trading at about $6.86 per share, ‘would soon become a $1.50 stock due to extreme retail euphoria and pending dilution’. By the end of July the same year, shares fell to $1.50. In May 2020, the investment research company wrote about China Metal Resources Utilization, showing how the company was under severe financial distress and identified numerous accounting irregularities, including evidence of undisclosed related party transactions. Following this, EY withdrew as auditor and shares fell more than 90 per cent.