Hindenburg Research, whose report on Adani group last year triggered a $150 billion rout in Adani stocks, has come out with a note, saying it received a 'show cause notice' from the Indian markets regulator Sebi that it thinks is "nonsense, concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India."
The initial sections of Sebi 46-page show cause notice outlined background on the Hindenburg report’s publication and an explanation of its relationship with an investor that expressed a short position in Adani.
"Much of the notice seemed designed to imply that our legal and disclosed investment stance was something secret or insidious, or to advance novel legal arguments claiming jurisdiction over us. Note that we are a US-based research firm with zero Indian entities, employees, consultants or operations. Some of these arguments seemed circular," Hindenburg said.
For example, said Hindenburg, the regulator claimed that the disclaimers in Hindenburg's report were misleading because it was indirectly participating in the Indian securities market,” and, therefore, were short Adani. "This wasn’t a mystery—virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it," it said.
Hindenburg alleged that while Sebi seemingly tied itself in knots to claim jurisdiction over it, the regulator conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani.
"Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL”. Uday Kotak, founder of the bank, personally led SEBI’s 2017 Committee on Corporate Governance. We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace," Hindenburg argued.
To recall, Hindenburg Research had published a 106-page, 32,000 words report last year. It included 720 citations, alleging Adani group's engagement in a brazen stock manipulation and accounting fraud scheme over the course of decades.