Informist, Tuesday, Jul 2, 2024

MUMBAI – US-based investment research firm Hindenburg Research LLC said on Monday that it received a show cause notice from the Securities and Exchange Board of India dated Jun 26 pertaining to trading activities of certain entities in the shares of Adani Enterprises "immediately preceding and post publication of Hindenburg Report." The firm said that much of SEBI's show cause 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."

Hindenburg Research uploaded the notice document on its website purported to have come from SEBI. As per this document, SEBI has issued the notice not only to Hindenburg Research but also to its founder Nathan Anderson, and to SEBI-registered Mauritius-based foreign portfolio investor K India Opportunities Fund Limited - Class F, US-based Kingdon Capital Management LLC, Cayman Islands-based M Kingdon Offshore Master Fund, and US-based Mark Kingdon.

In January 2023, Hindenburg Research released a controversial long report claiming that it had uncovered a labyrinth of offshore shell entities managed by Vinod Adani, the elder brother of Adani Group Chairman Gautam Adani and former director with Adani Enterprises and other Adani Group companies. The report alleged that these offshore companies were seemingly used for, among other things, routing money through Adani's private companies to the Group companies in order to give the appearance of strong financial solvency, and to evade the minimum public shareholding requirement for domestic listed companies. The Adani Group dismissed these and other allegations in the Hindenburg report as baseless and malicious.

In the Hindenburg-uploaded show cause notice document, the market regulator has alleged that these six entities directly or indirectly earned wrongful gains from short positions in the futures contracts of Adani Enterprises prior to the release of the Hindenburg report on Jan 25, 2023 and the subsequent squaring off when the shares fell nearly 60?tween Jan 25, 2023 and Feb 22, 2023. The notice, which provides extensive details, alleged that this operation breached the norms and sought to know from the entities why it should not attract regulatory action of disgorgement of illegal gains and penalties.

In its statement on Monday, Hindenburg Research said that its connection with short positions in Adani Enterprises was not a mystery. It said that "virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it."

This was in response to SEBI's allegation that disclaimers made by Hindenburg in its January 2023 report were misleading. Hindenburg Research said that "SEBI took issue with our disclaimer that fairly described how we were short Adani—through a deal with an investor partner who was indirectly short Adani derivatives through a non-Indian, offshore fund structure."

The investment research firm said that SEBI made a "nebulous" allegation that its report contained misrepresentations and inaccurate statements meant to mislead readers. End

Reported by Rajesh Gajra

Edited by Maheswaran Parameswaran

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