The Securities and Exchange Board of India (SEBI) has accused US short seller Hindenburg Research of sharing its report against the Adani Group to one of its clients two months before publishing it.
According to news agency PTI, Hindenburg shared the report with New York-based hedge fund manager Mark Kingdon. SEBI has alleged that by sharing the report, Hindenburg had “profited from a deal to share spoils from share price movement.”
In its 46-page show cause notice to Hindenburg SEBI details how Hindenburg managed to benefit over $150 billion dollars and charged the US short seller of making “unfair” profits from “collusion” to use “non-public” and “misleading” information and induce “panic selling” in Adani Group stocks.
According to SEBI, Hindenburg published a report titled ‘Adani Group: How the world’s 3rd richest man is pulling the largest con in corporate history’ on January 24, 2023 (US time – January 25, 2023, according to IST) during pre-market hours.
“Prior to the release of the Hindenburg Report, concentration in short-selling activity was observed in the derivatives of Adani Enterprises Ltd,” it said. “Pursuant to the release of the said report, the price of AEL fell by around 59 per cent during the period from January 24, 2023 to February 22, 2023” from ₹3,422 to ₹14,04.85 per share.
“The net profit after trading and legal expenses comes to $22.11 million,” SEBI said.
“As part of the deal, Kingdon owned Hindenburg $5.5 million, of which $4.1 million had been paid as of June 1,” the notice said.
SEBI notice includes extracts of time-stamped chats between an employee of the hedge fund and KMIL traders for selling future contracts in AEL.
SEBI has given Hindenburg 21 days to respond to its allegations.
Chinese link
Senior lawyer Mahesh Jethmalani, who had in the past spoken for the Adani Group, in a post on X claimed that Kingdon had a Chinese link.
Kingdon is married to “Chinese spy” Anla Cheng, he claimed.
“Accomplished Chinese spy Anla Cheng, who along with her husband Mark Kingdon, hired Hindenburg for a research report on Adani, engaged the services of Kotak to facilitate a trading account to short sell Adani shares; made millions of dollars from their short selling; eroded Adani market cap enormously,” he alleged.
Move to intimidate those who expose corruption: Hindenburg
Hindenburg, in its response, has described the show cause as an attempt to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India” and revealed that the vehicle used to bet against Adani’s flagship firm Adani Enterprises belonged to Kotak Mahindra (International), a Mauritius-based subsidiary of Kotak Mahindra Bank.
Mark Kingdom, in its response to SEBI, stated it had got legal option that it could “enter into a research services agreement with a third-party firm that publicly releases short reports on companies, pursuant to which Kingdon Capital would be given a draft copy of the report before it is made publicly available and would have the opportunity to accordingly made investments before the report’s public dissemination”.
A show-cause notice is often a precursor to formal legal action that may include imposing financial penalties and barring participation in the Indian capital market. SEBI can also seek Government help to geoblock the research firm’s website.
