SEBI Says Hindenburg Shared Adani Report With Client Two Months Before Publishing

The Securities and Exchange Board of India (SEBI) has issued a show cause notice to US-based short seller Hindenburg Research, alleging collaboration with New York hedge fund manager Mark Kingdon.  They also disclosed that Kotak Mahindra (International) Ltd., a subsidiary based in Mauritius, facilitated their bet against Adani Enterprises Limited.

According to SEBI’s detailed 46-page notice, Hindenburg allegedly shared an advanced copy of its critical report on the Adani Group with Kingdon approximately two months before its public release, potentially influencing market dynamics.

Allegations and Financial Impact

SEBI has claimed that Hindenburg, Kingdon’s Kingdon Capital Management, and the broker linked to Kotak Mahindra Bank profited from a significant decline in the market value of Adani Group’s 10 listed companies, totaling over $150 billion. The regulator has accused Hindenburg of exploiting non-public and misleading information to trigger panic selling in Adani Group stocks, directly affecting market stability.

Financially, Kingdon’s hedge fund reportedly generated substantial profits from short positions in Adani Enterprises Ltd., resulting in a total profit of Rs.183.23 crore ($22.25 million). According to the reports, Hindenburg purportedly received $4.1 million from its disclosed positions on Adani Group stocks, with additional payments under scrutiny now.

Response and Legal Implications

In response, Hindenburg has refuted SEBI’s allegations, portraying the notice as an effort to impede disclosures of potential corporate misconduct within Indian entities. Further, the company revealed that Kotak Mahindra (International) Ltd., a Mauritius-based subsidiary of Kotak Mahindra Bank, facilitated Kingdon’s trades against Adani Enterprises Ltd., backed by documented communications between Kingdon’s fund and KMIL traders.

Conclusion: SEBI’s show cause notice will result in potential legal actions, including financial penalties and trading restrictions in Indian markets. For now, to promote transparency and market integrity, SEBI  has provided Hindenburg 21 days to formally respond to the allegations. This unfolding controversy highlights the interplay between global financial regulations and their impact on international investors and regulatory bodies.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.