The main accusation is that Hindenburg misled the market by falsely claiming it had no direct or indirect exposure to Adani Group shares listed in India.
The Securities and Exchange Board of India (Sebi) has issued a show cause notice to Hindenburg Research, alleging several violations.
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The main accusation is that Hindenburg misled the market by falsely claiming it had no direct or indirect exposure to Adani Group shares listed in India.
Sebi said that Hindenburg’s January 2023 report on the Adani Group included misleading disclosures.
Hindenburg stated that its exposure to Adani Group securities was limited to US-traded bonds and non-Indian derivative instruments. These statements appeared in the report’s “Disclaimer,” “Initial Disclosure,” and “Disclosure” sections.
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However, Sebi alleges that these claims were deceptive and contributed to the erosion of over $150 billion in Adani Group’s market capitalization within weeks.
The notice reveals that K India Opportunities Fund Ltd—Class F, a Sebi-registered foreign portfolio investor, traded in Adani Enterprises shares just before the report was published and squared off its short position immediately afterward, making a profit of Rs 183.24 crore ($22.25 million).
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“An initial analysis of trading during the period immediately prior to release of the Report and immediately after revealed that one entity, namely, K India Opportunities Fund Limited – Class F… opened a trading account and started trading in the scrip of AEL just a few days prior to publication of the Report, and then squared-off its entire short position post-publication of the Hindenburg Report, making significant profits of Indian Rupees 183.24 crore ($22.25 million),” the Sebi show cause notice said.
Sebi’s findings indicate that Kingdon Capital, a client of Hindenburg, and K India Opportunities Fund are connected through Mark Kingdon, who owns 99% of Kingdon Capital. This connection undermines Hindenburg’s assertion of no direct or indirect exposure to Adani Group shares in India.
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Furthermore, Sebi claims that Kingdon Capital enabled Hindenburg’s indirect participation in the Indian securities market by collaborating on trades in Adani Enterprises futures and sharing the profits. This arrangement contradicts Hindenburg’s stated lack of association in its report.
“By effecting a scheme to share with Hindenburg the profits from trades in Indian-listed companies based on an overall negative draft of Hindenburg Report whose timing of publication was known to KIOF Class F through Kingdon Capital, and by failing to ensure that the Research Report was used in compliance with RA Regulations, KIOF Class F failed to exercise due diligence, engaged in fraudulent transactions, which is in violation of the SEBI FPI Regulations,” it added.
