📷 Image Credits: The Indian Express
The Securities and Exchange Board of India (Sebi) has accused US short-seller Hindenburg Research of engaging in collusion with New York-based hedge fund manager Mark Kingdon, sharing an advance copy of its critical report on the Adani Group two months before its public release. Sebi alleged that Hindenburg, Kingdon’s hedge fund, and a broker linked to Kotak Mahindra Bank profited from the over $150 billion decline in the market value of Adani Group’s 10 listed firms post-report publication.
Sebi charged Hindenburg with making “unfair” profits through collusion, utilizing non-public and misleading information to induce panic selling in Adani Group stocks. In response, Hindenburg criticized the show cause notice, stating it was an attempt to silence those exposing corruption in India. The company revealed that bets against Adani Enterprises Ltd were made using funds from Kotak Mahindra (International) Ltd, a Mauritius-based subsidiary of Kotak Mahindra Bank.
The show cause notice disclosed time-stamped chats between a hedge fund employee and KMIL traders selling future contracts in AEL. Kingdon, who had a controlling stake in KMIL’s K-India Opportunities Fund, agreed to share 30% of profits generated from securities trading based on the report, later reduced to 25% due to rerouting trades through the K India fund. The regulator revealed that Kingdon transferred $43 million to build short positions in AEL.
According to Sebi, pre-report short-selling activity concentrated in Adani Enterprises Ltd’s derivatives. Following the report’s release, Adani Enterprises shares plummeted by around 59% from January 24, 2023, to February 22, 2023. KIOF Class F squared off its entire short position post-report publication, securing profits of Rs 183.23 crore (USD 22.25 million).
Hindenburg, which published the Sebi notice on its website, stated that it made $4.1 million from its positions on Adani stocks and critiqued Sebi for overlooking evidence of Adani’s offshore shell entities. The regulator failed to name the Kotak Mahindra Bank, masking it with the acronym “KMIL.” Sebi has given Hindenburg 21 days to respond to the allegations, with potential legal action pending that may include financial penalties and market participation bans.
