Sebi Alleges Collusion in Hindenburg’s ‘Panic’ Selling of Adani Group Stocks
News Mania Desk/ Agnibeena Ghosh/7th July 2024
The Securities and Exchange Board of India (Sebi) has issued a show cause notice accusing US-based short-seller Hindenburg Research of colluding with New York hedge fund manager Mark Kingdon and a broker linked to Kotak Mahindra Bank to profit from the decline in Adani group stocks. The notice, spanning 46 pages, details how Hindenburg allegedly shared a draft report on Adani with Kingdon’s fund, facilitating substantial profits through short-selling activities.
According to Sebi, Hindenburg and Kingdon Capital Management benefited from an orchestrated strategy involving non-public and misleading information. This approach allegedly induced panic selling, resulting in a significant decrease in the market value of Adani group’s listed firms, amounting to over USD 150 billion.
Hindenburg’s initial move involved sharing an advance copy of its report titled ‘Adani Group: How the World’s 3rd Richest Man is Pulling The Largest Con in Corporate History’ with Kingdon. This action reportedly allowed Kingdon’s fund, through Kotak Mahindra’s Mauritius-based subsidiary, to open a trading account and initiate short positions in Adani Enterprises Ltd (AEL).
The regulator disclosed time-stamped communications indicating collaboration between Kingdon’s fund and KMIL traders, specifically discussing the sale of future contracts in AEL. Sebi highlighted that Kingdon’s fund strategically entered short positions shortly before the report’s public release and closed these positions immediately afterward, realizing substantial profits amounting to Rs 183.23 crore (USD 22.25 million).
In response to the show cause notice, Hindenburg defended its actions as an effort to expose corruption and fraud within the Adani group. The firm criticized Sebi’s investigation, arguing that it failed to address evidence of financial misconduct allegedly involving Adani’s offshore entities.
Kingdon Capital Management justified its involvement by citing legal agreements permitting it to receive advance copies of research reports from third-party firms like Hindenburg. These agreements allegedly allowed Kingdon Capital to capitalize on market movements triggered by the publication of negative reports on targeted companies.
Sebi’s notice also implicated Kotak Mahindra Bank, pointing out its role in facilitating the offshore fund structure used by Kingdon’s investor partner to execute short-selling strategies against Adani group stocks. The regulator expressed concerns over potential market manipulation and unfair trading practices, calling for a comprehensive response from all parties involved within 21 days.
The ongoing investigation marks a critical phase in Sebi’s efforts to maintain market integrity and investor confidence in India’s capital markets. Depending on Hindenburg’s response, Sebi may proceed with legal actions, including financial penalties and restrictions on market participation.
As the regulatory scrutiny intensifies, stakeholders await further developments in the unfolding controversy surrounding Adani group’s market activities and the broader implications for transparency and accountability in international financial markets.
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