India's market regulator Sebi has issued a show-cause notice to Hindenburg, asking why it should not act against the shortseller for violating norms related to the “prohibition of fraudulent and unfair trading practices in the securities market”.
The notice, dated June 26, was released online by Hindenburg, which took a defiant stand against the market regulator and made counter charges for not acting on their allegations.
Hindenburg described the notice as “nonsense” and “nebulous” and alleged attempts to silence the research firm. Hindenburg also claimed it only made $4 million from the operation, which resulted in a $153 billion drop in the Adani group’s valuation.
In a statement, Hindenburg said: “Sebi has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it.” The thrust of Sebi's notice is that the research firm colluded with its investor partner, misled the public, and used non-public information to manipulate prices and profit from its action.
Kotak Mahindra Bank informed stock exchanges that Sebi’s show-cause notice to Hindenburg and Kingdon included a fund managed by Kotak Mahindra International (KMIL). This followed Hindenburg’s revelation that KMIL had created the offshore fund structure used by its investor partner Kingdon Capital to short Adani stocks before its report was published in Jan 2023. In a statement, the bank said, “Kingdon had not disclosed that they had any relationship with Hindenburg nor that they were acting on the basis of any price sensitive information. In fact, they had expressly confirmed that any advice from Kingdon to invest would be basis purely public information.”
In Jan 2023, a fund managed by Mark Kingdon sent $43 million to the K India Opportunities Fund, which then began short-selling Adani Enterprises using futures, according to the notice. These short positions were closed by Feb 22, earning $22 million. By June 1, the Kingdon fund had given Hindenburg $4.1 million from the profits of the Adani short sale.
