SEBI Issued Show Cause Notice to Hindenburg Research

By Legal Wires 5 Minutes Read

On July 2, Hindenburg Research (United States), accused the Adani Group of stock market manipulation and accounting fraud and announced that it had received a show-cause notice from the Securities and Exchange Board of India (SEBI). The notice pertains to alleged violations connected to its activities involving bets on Adani stocks.

Hindenburg Research has dismissed the show cause notice as “nonsense” and claimed it was “concocted to serve a pre-ordained purpose.” The firm has alleged that the notice was an attempt to silence and intimidate those who expose corruption and fraud committed by some of the most powerful individuals in India.

Hindenburg Research has released a report highly critical of the Securities and Exchange Board of India (SEBI), accusing the regulatory body of failing to oversee the financial markets and protect investors adequately. The report highlights numerous instances where SEBI allegedly overlooked significant issues, such as market manipulation, insider trading, and corporate fraud. Hindenburg argues that these regulatory lapses have eroded investor confidence and calls for substantial reforms within SEBI to enhance its effectiveness and accountability in safeguarding the integrity of India’s financial markets. Further, the report accused the Adani Group of engaging in “brazen stock manipulation and accounting fraud schemes over decades,” where it had disclosed its short position on Adani stocks, anticipating a drop in their value. They have also revealed that Kotak Bank created and managed an offshore fund structure used by its “investor partner” to bet against the Adani conglomerate. However, the firm noted it might “barely break even” on this trade.

Without naming the investor, Hindenburg stated it earned $4.1 million in gross revenue from “gains related to Adani shorts from that investor relationship” and only $31,000 from its short position on Adani’s U.S. bonds. To which the Adani Group has denied all allegations.

Moreover, Hindenburg has claimed that after a 1.5-year investigation, SEBI found no factual inaccuracies in their Adani research. Instead, the regulator objected to their use of the term “scandal” to describe instances where Adani promoters were charged with fraud by Indian regulators and to a quote alleging SEBI’s corruption and collusion with conglomerates like Adani to evade regulations.

Hindenburg Research stated that the show cause notice clarifies certain points: “Did Hindenburg collaborate with multiple firms to short Adani, earning hundreds of millions? No – we had one investor partner and, after costs, we might barely break even on our Adani short.”

The firm clarified that their work on Adani was not motivated by financial gain or personal safety but remains the work they are most proud of. They received an email from SEBI on June 27, followed by a show cause notice detailing alleged violations of Indian regulations.

Hindenburg accused Adani of failing to address the core allegations in their report, instead offering blanket denials. Their January 2023 report provided evidence of a network of offshore shell entities controlled by Gautam Adani’s brother, Vinod Adani, which allegedly moved billions without proper disclosures. The firm criticized SEBI’s notice as attempting to portray its disclosed investment stance as secretive or insidious and questioning its jurisdiction over a U.S. based firm without Indian operations. Also, the SEBI’s notice did not mention Kotak Bank, with whom they have ties, suggesting that SEBI might be protecting another powerful Indian businessman from scrutiny.

Read Hindenburg Report Here: https://hindenburgresearch.com/adani/

Legal Wires

Team @LegalWires