Adani short bet: Hindenburg denies allegations from Indian regulator

Hindenburg Research has denied allegations from India's securities regulator on Monday. The regulator accused Hindenburg of colluding with a US asset manager to use non-public information to establish its short bet against Adani Group last year.

In a statement on its website, Hindenburg provided a 46-page show cause notice from the Securities and Exchange Board of India (SEBI). The notice outlined allegations that Hindenburg, Kingdon Capital Management, and a Mauritius-based trading fund set up by Kotak Mahindra Bank violated rules under the Prevention of Fraud and Unfair Trade Practices regulation.

SEBI has not made the notice public, but two sources at the regulator confirmed its authenticity to Reuters. The allegations, if proven, could lead to monetary penalties and the return of any illegal gains.

Hindenburg dismissed the notice as "nonsense" and an attempt to silence and intimidate. The company stated that SEBI's report contained misrepresentations and inaccurate statements intended to mislead readers.

"In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it," Hindenburg said.

The SEBI notice adds a new twist to the saga that began last year when Hindenburg, founded by Nathan Anderson, alleged improper business dealings by Adani. Adani, which refuted the allegations, saw a loss of up to £119.05 billion in market value but has since rebounded.

According to the notice, SEBI alleges that Hindenburg colluded with its client Kingdon Capital Management by providing a draft of its report on Adani Group before it was released publicly. SEBI claims that Mark Kingdon, the owner of Kingdon Capital, set up a fund called K Indian Opportunities Fund, which created short positions in Adani group stocks between 10th January 2023 and 20th January 2023, five days before the Hindenburg report was published.

Hindenburg stated that a Mauritius-registered unit of Kotak Mahindra Bank created and oversaw an offshore fund structure used by its "investor partner" to bet against Adani's shares. According to SEBI documents, these positions were squared off in February, leading to gains of £17.7 million.

Hindenburg did not comment on its relationship with Kingdon. Emails to Hindenburg Research and Kingdon Capital were not immediately answered. SEBI and Kotak Mahindra Bank did not respond to requests for comment.

Hindenburg's response shed some light on the mechanics of its Adani short trade. The company stated it made £3.25 million in gross revenue through "gains related to Adani shorts from that investor relationship" and £24,603 through its short position on Adani's U.S. bonds. It did not name the investor.

"It was a tiny position," it said. "But, to date, our research on Adani is by far the work we are most proud of."

(Reuters)