The Securities and Exchange Board of India (SEBI) alleged that US short-seller Hindenburg Research shared an advance copy of its critical report on the Adani group with New York hedge fund manager Mark Kingdon about two months before its publication, benefiting from a profit-sharing arrangement tied to stock price movements.
According to SEBI’s 46-page show cause notice, Hindenburg, Kingdon’s Kingdon Capital Management, and a broker associated with Kotak Mahindra Bank profited from the over USD 150 billion decline in market value across Adani’s 10 listed firms following the report’s release.
SEBI charged Hindenburg of making “unfair” profits from “collusion” to use “non-public” and “misleading” information and induce “panic selling” in Adani Group stocks.
Hindenburg said that the show cause as an attempt to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India”. It further revealed that the vehicle used to bet against Adani’s flagship firm Adani Enterprises Ltd belonged to Kotak Mahindra (International) Ltd, a Mauritius-based subsidiary of Kotak Mahindra Bank Ltd.
The notice revealed that Kotak Mahindra (International) Ltd, a Mauritius-based subsidiary of Kotak Mahindra Bank, facilitated Hindenburg’s short-selling strategy against Adani Enterprises Ltd for Kingdon’s fund. SEBI cited time-stamped chats between Kingdon’s employee and Kotak Mahindra Investment Ltd (KMIL) traders discussing the sale of futures contracts in Adani Enterprises Ltd.
Kotak Mahindra Bank stated that Kingdon did not disclose any relationship with Hindenburg or act on price-sensitive information provided by them.
SEBI has issued notices to Hindenburg, KMIL, Kingdon, and Hindenburg founder Nathan Anderson. The regulator’s investigation also involves opaque offshore entities holding significant stakes in Adani group stocks.
Kingdon’s association with Hindenburg reportedly included a profit-sharing agreement, where 30% of profits from trading based on the report were initially earmarked for Hindenburg. This arrangement was later adjusted to 25%.
SEBI detailed that Kingdon transferred USD 43 million to build short positions in Adani Enterprises Ltd, with substantial profits realized after the report’s release. It noted a 59% decline in Adani Enterprises Ltd’s stock price from January 24, 2023, to February 22, 2023, following Hindenburg’s report.
SEBI last year told a Supreme Court-appointed panel that it was investigating 13 opaque offshore entities that held between 14 per cent and 20 per cent across five publicly traded stocks of the Adani group.
Hindenburg’s report titled ‘Adani Group: How the World’s 3rd Richest Man is Pulling The Largest Con in Corporate History’ was published on January 24, 2023 (US time).
The regulator has given Hindenburg 21 days to respond to the allegations, failing which it could impose financial penalties and restrictions on its activities in the Indian capital market.