Winning Bizness Desk

Mumbai. American short-selling firm Hindenburg Research has sparked fresh speculation with a cryptic statement, suggesting that something significant is about to unfold in India. The firm, which gained notoriety a year ago after accusing the Adani Group of money laundering and stock manipulation, made this claim in a recent social media post. Although the post did not name any specific company, it hinted at an impending disclosure that has caught the attention of market watchers.

Hindenburg Research had previously published a report on January 24, 2023, targeting the Adani Group, which led to a sharp decline in the conglomerate's stock prices. While the shares later recovered, the impact of the report was felt across the Indian market. In response, the Securities and Exchange Board of India (SEBI) issued a 46-page show-cause notice to Hindenburg, alleging violations of regulatory norms. In a blog post dated July 1, 2024, Hindenburg stated that SEBI's notice accused the firm of making false statements in its report to mislead readers. Hindenburg, in turn, leveled serious allegations against SEBI.

Hindenburg Accuses SEBI of Protecting Fraudsters

Hindenburg Research has accused SEBI of neglecting its duty by allegedly protecting fraudsters rather than safeguarding investors. "In our view, SEBI has neglected its responsibility, appearing to do more to protect fraudsters than to protect investors from them," the firm said. Hindenburg claimed that SEBI's secret assistance to the Adani Group began almost immediately after the publication of the January 2023 report. The firm alleged that SEBI pressured brokers behind the scenes to close short positions in Adani shares, creating buying pressure and stabilizing the stock at a crucial time.

Hindenburg also criticized SEBI's handling of the investigation when public and judicial pressure mounted. The firm stated that SEBI initially appeared to agree with several key findings from Hindenburg's report but later seemed unable to pursue a thorough investigation. According to the Supreme Court case records cited by Hindenburg, SEBI was unable to determine whether those funding the Foreign Portfolio Investors (FPIs) linked to Adani had any connections to the conglomerate. SEBI later claimed that it could not investigate further.

Hindenburg Alleges SEBI's Protection of Uday Kotak's Firm

In its blog post, Hindenburg also accused SEBI of shielding Uday Kotak's brokerage firms, which the research firm claims facilitated offshore fund structures used by investors to short-sell Adani Group shares. Hindenburg pointed out that SEBI, in its notice, mentioned K-India Opportunities Fund but referred to Kotak Mahindra Investment (KMIL) with the abbreviation "KMIL" instead of naming the firm explicitly. The firm speculated that SEBI's omission of Kotak's name might be an attempt to protect another powerful Indian businessman from scrutiny.

The show-cause notice issued by SEBI pertains to the trading activities of certain entities in Adani Enterprises' shares before and after the release of Hindenburg's report. The notice highlights a concentration of short-selling activity in Adani Enterprises' derivatives just before the report's publication. Following the release of the report, Adani Enterprises' share price plummeted by approximately 59% between January 24, 2023, and February 22, 2023, before eventually recovering.

Understanding Short Selling

Short selling involves selling shares that the trader does not own at the time of the trade, with the intention of buying them back later to settle the position. Essentially, it is the reverse of the typical buy-and-sell transaction, with the profit or loss determined by the difference in share prices between the sale and repurchase. This practice is common among traders who anticipate a decline in a stock's price.