Hindenburg Reseach Receives 46-Page Show-Cause Notice From SEBI In Adani Case; Calls It “Attempt To Silence Those Who Expose Corruption”

Hindenburg Research, the US based short seller who is renowned for its extensive report on the Adani Group that had triggered a disarray on the group’s stocks last year, announced that it has receiced a show cause notice from India’s market regulator Security and Exchange Board of India (SEBI) on June 27.

The Show cause letter “oultined suspected violations of Indian regulations” over its short bet against the Gautam Adani-led group from the previous year. Hindenburg Research claimed that SEBI had come to the aid of the Adani Group post the release of the January 2023 report that accused the Group of improper use of tax havens and had raised significant concerns regarding debt levels.

The Hindenburg Research further trashed the show cause notice and and called it an attempt “to silence and intimidate those who expose corruption and fraud perpetrated by the most powereful individuals and groups in India”

“Our understanding from discussions with sources in the Indian market is that Sebi’s surreptitious aid of Adani commenced almost immediately post-publication of our January 2023 report,” it said in a blog post on Tuesday.

“Following our report, we were told that Sebi pressured brokers behind the scenes to close short positions in Adani under the threat of expensive, perpetual investigations, effectively creating buying pressure and setting a ‘floor’ for Adani’s stocks at a critical time.”

The research company further stated that the regulator had seemed to agree with several of the key findings of their report when the Supreme Court of India had asked SEBI to investigate the accusations and charges in the previous year.

“Later, Sebi claimed to be unable to investigate further,” it said. “After 1.5 years Of investigation, SEBI identified zero factual inaccuracies with our Adani research. Instead, the regulator took issue with things like: Our use of the word “scandal” when describing multiple prior instances of Adani promoters being charged with fraud by Indian regulators and our quoting of an individual that alleged SEBI is corrupt and work ‘hand in glove’ with conglomerates like Adani to help it skirt regulations.”

The company further added that Adani Group’s Chief Financial Officer Jugeshinder Singh had, last month, termed some of the notices that were aimed towards the group by the regulator as “trivial.”

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“This confidence may be derived in part through Adani’s relationship with Sebi,” the company mentioned that Gautam Adani had met Sebi Chairperson Madhabi Puri Buch twice in 2022.

Additionally it stated that would file a right to information (RTI) in order to seek the names of the employees from Sebi who worked on the Adani case as well as the Hindenburg case. They stated that they would also ask for basic details about the meetings and calls that took place between Sebi and Adani andits representatives.

“We will await Sebi’s response on whether it will provide basic transparency on its investigations,” it said.

Hindenburg’s response also implicated Kotak Mahindra Bank in the controversy, alleging that the bank created and oversaw an offshore fund structure used by an unnamed investor partner to bet against Adani. Hindenburg criticized SEBI for not naming Kotak Mahindra Bank in its notice, instead referring to it by the acronym “KMIL.”

Additionally Hindenburg also attached the 46-page notice that Sebi had sent to the company that stated that the report that was released in January 2023 “contained misrepresentations/inaccurate statements” which were aimed at misleading readers.

“In our view, Sebi has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it,” Hindenburg said that they had one investor partner in their Adani thesis.

“We have made $4.1 million in gross revenue through gains related to Adani shorts from that investor relationship,” it said. “We made just $31,000 through our own short of Adani US bonds held into the report.”

“Net of legal and research expenses (including time, salaries/compensation, and costs for a two-year global investigation) we may come out ahead of break even on our Adani short,” Hindenburg reseach’s post read. They stated that there was “never a point where the Adani thesis was financially justifiable for us.”

However, their research on the Adani Group was the best work that the company was proud of, even till today. The short seller asserted that the report was a verly loud message to the Indian investors that they had noprotection from fraud. “Corporate governance in India is a myth for businessmen that can buy influence,” it said.

SEBI had been investigating into the billionaire Gautam Adani-led Adani Group after the allegations that were made by the Hindenburg Research regarding the group’s improper use of tax and manipulation of stocks.