Hindenburg Rejects SEBI Notice as 'Nonsense' and 'Concocted'

Hindenburg Research, an American short-seller, described the Sebi show-cause notice regarding its 2023 report on the Adani Group as ‘nonsense’ and ‘concocted’. 

“We think it is nonsense, concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India,” Hindenburg said in a post on its website.

Hindenburg Research criticized the Indian market regulator for omitting Kotak Bank, which it claimed "established and managed the offshore fund structure utilized by our investor partner to bet against Adani."

According to Hindenburg, the 46-page show cause notice was issued on June 27. The blog post mentioned that the research firm had taken a short position on Adani shares "through an arrangement with an investor partner who was indirectly shorting Adani derivatives via a non-Indian, offshore fund structure." 

Hindenburg claimed that the show-cause notice overlooked the substance of its 106-page report and focused solely on the technical aspects of its disclaimer. Sebi, Adani Group, and Kotak Bank did not promptly respond to email queries from Moneycontrol.

“One might think that a securities regulator would be interested in meaningfully pursuing the parties that ran a secret offshore shell empire engaging in billions of dollars of undisclosed related party transactions through public companies while propping up its stocks through undisclosed share ownership via a network of sham investment entities. Instead, Sebi seems more interested in pursuing those who expose such practices,” said the US short-seller.

The US-based short seller questioned why Sebi failed to name Kotak bank in its observations. “While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead, it simply named the K-India Opportunities fund and masked the 'Kotak' name with the acronym 'KMIL',” Hindenburg said.

"Uday Kotak, founder of the bank, personally led SEBI’s 2017 Committee on Corporate Governance. We suspect SEBI’s lack of mention of Kotak, or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace," Hindenburg said. 

Hindenburg further alleged that the Indian capital markets regulator covertly pressured brokers to close short positions in Adani by threatening costly, indefinite investigations. This tactic, according to Hindenburg, effectively generated buying pressure and established a 'floor' for Adani's stocks at a crucial moment.

On January 24, 2023, Hindenburg Research released a report alleging that Adani group companies were involved in stock manipulation and accounting fraud, just before a planned ₹20,000 crore share sale by Adani Enterprises. The conglomerate dismissed the report as malicious and unfounded.

In January, India's Supreme Court ruled that the Adani Group would not be subject to any further investigations beyond Sebi's current scrutiny, providing relief to the conglomerate. Sebi has been investigating the Adani Group for potential use of tax havens and stock manipulation. The verdict indicated no increased regulatory risk for Adani and maintained the existing disclosure rules for offshore funds, despite Hindenburg's allegations.