Hindenburg gets SEBI notice in Adani case; calls it 'nonsense', 'concocted'

U.S.-based short seller Hindenburg Research has received a "show cause" notice from India's capital markets regulator Securities and Exchange Board of India (SEBI) on June 27, the company informed on July 1, 2024. The notice was issued after the short seller's scathing report in January 2023, accusing the Adani group of stock manipulations and ties in tax havens, which the Adani group categorically denied.

Hindenburg says it received an email from SEBI recently, with a ‘show-cause’ notice, outlining suspected "violations of Indian regulations". It says SEBI's notice is "nonsense". "Today we are sharing the entirety of this notice, frankly because we think it 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."

Hindenburg alleges that its sources in the Indian market say "SEBI’s surreptitious aid of Adani commenced almost immediately post-publication of our January 2023 report". It accused SEBI of "pressuring 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 company says to this day, Adani "hasn’t directly addressed the findings from our research". Notably, Gautam Adani, during the recent AGM of the group on June 24, 2024, said Hindenburg's report was designed to damage the Adani group and erode the conglomerate’s “hard-earned” market value.

Hindenburg's January 2023 report had alleged that the Adani group was “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” Gautam Adani recently accused Hinderburg of waging a “two-sided attack”. “Typical short sellers target gains from financial markets. This was different. It was a two-sided attack– a vague criticism of our financial standing and, at the same time, an information distortion campaign, dragging us into a political battlefield.”

Hindenburg also accused SEBI of being "more interested" in pursuing those who expose such practices. "This stance is broadly in line with the actions of other elements of the Indian government, which have sought to arrest 4 journalists for writing critical articles about Adani and expelled members of parliament who were critical of Adani."

It claimed that when pressed by the public and the Supreme Court to investigate the issues, SEBI appeared to "flounder". It said SEBI initially seemed to agree with several key findings from its report but later claimed to be unable to investigate further.

"Court documents showed that SEBI had conveniently “drawn a blank” and that further enquiry could be a “journey without a destination,” underscoring its inability or unwillingness to investigate serious allegations against Adani," says Hindenburg.

Hindenburg said in late June 2024, as per media reports, Adani CFO Jugeshinder Singh described some regulator notices to it as “trivial”. "This confidence may be derived in part through Adani’s relationship with SEBI. Gautam Adani met the SEBI Chairperson Madhabi Buch twice in 2022, becoming “the first high profile businessman” to do so," the short seller claimed.

The company says it is in the process of filing an RTI, seeking the names of SEBI employees who worked on both the Adani matter and the Hindenburg matter, along with basic details on meetings and calls between SEBI and Adani and its various representatives. "We will await SEBI’s response on whether it will provide basic transparency on its investigations."

The company accuses SEBI of "neglecting" its responsibility and seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it.

Clarifying the issue of investor partners, Hindenburg says it only had one investor relationship in Adani's thesis, as is customary for its approach. "We have made ~$4.1 million in gross revenue through gains related to Adani shorts from that investor relationship. We made just U.S.~ $31,000 through our own short of Adani U.S. bonds held into the report."

Notably, the capital markets regulator is probing the Adani group in the Hindenburg case. The Supreme Court in January 2024 refused to transfer the probe being carried out by SEBI to a separate special investigation team (SIT), saying the "power of this court to enter the regulatory framework of SEBI is limited". The SC also said there was no "ground" to transfer the case from SEBI to an SIT.