Hindenburg accuses SEBI of intimidation attempt to silence corruption exposés in Adani

United States-based firm Hindenburg Research has been issued a show cause notice by the Securities and Exchange Board of India (SEBI), alleging violations related to its trading activities involving Adani Group stocks.

The 46-page notice has been characterized by Hindenburg as an attempt to intimidate and silence those exposing corruption and fraud by powerful individuals in India.

“Our understanding from discussions with sources in the Indian market is that SEBI’s surreptitious aid of Adani commenced almost immediately post-publication of our January 2023 report,” Hindenburg said in a statement in response to the notice.

Hindenburg's contentious relationship with the Adani Group began in January 2023, when the research firm published a report accusing the conglomerate of accounting fraud and money laundering.

Describing it as the "largest con in corporate history," the report led to a significant decline in the stock prices of Adani's listed companies, resulting in a loss of over $100 billion in market value.

In response to the Hindenburg report, the Supreme Court of India, in March 2023, directed SEBI to conduct a thorough investigation into the allegations. However, Hindenburg now contends that SEBI's actions have been biased and have favoured the Adani Group. According to the firm, SEBI pressured brokers to close short positions in Adani stocks, which effectively created buying pressure and stabilized the stock prices.

Hindenburg argues that SEBI's notice aims to portray its disclosed investment stance as something nefarious. The firm asserts that it operates solely from the United States, with no entities, employees, consultants, or operations in India.

Hindenburg also criticizes the notice for omitting key details about Kotak Bank, which allegedly created and managed the offshore fund structure used by Hindenburg's investor partner to short Adani stocks. Instead of directly naming Kotak Bank, the notice refers to it as "KMIL" (Kotak Mahindra Investment Limited), which Hindenburg claims is an attempt to shield another powerful Indian businessman from scrutiny.

Despite the contentious backdrop, Hindenburg disclosed that it had made $4.1 million in gross revenue from gains related to Adani shorts through its investor partner and $31,000 from its short position on Adani's United States bonds. However, the firm indicated that after accounting for legal and research expenses incurred during the two-year global investigation, its net profit from the Adani short might just break even.

Hindenburg's allegations against SEBI extend to the regulator's overall approach, accusing it of protecting those committing fraud rather than safeguarding the interests of victimized investors. The firm’s strong response highlights the ongoing tension between market watchdogs and entities seeking to expose financial irregularities in influential corporate groups.

This development underscores the complex and often contentious dynamics between regulatory bodies, investigative firms, and powerful business conglomerates. As SEBI continues its inquiry into the Adani Group, the financial and regulatory communities will closely watch the outcomes, particularly regarding how such high-profile disputes are resolved and the implications for market integrity and investor protection.

Hindenburg's stance suggests that the battle over the Adani Group's financial practices is far from over, with significant repercussions for both the involved parties and the broader regulatory environment in India.