Adani case: How Hindenburg responded to Sebi’s show cause notice (2024)

Hindenburg Research has responded to a 46-page show cause notice issued by the Securities and Exchange Board of India (Sebi) in connection with the Adani case, calling it “nonsense” and accusing the market regulator of neglecting its responsibility.

“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,” the US-based short seller said.

In its detailed response, Hindenburg Research alleged that the Adani Group has not “directly addressed” the findings of its research report. Rather, it has offered “deflections and blanket denials”.

Here are some of the key highlights from Hindenburg’s response to Sebi’s show cause notice:

Hindenburg defends Adani report

Hindenburg highlighted that its 106-page report on the Adani Group included 720 citations, collectively detailing evidence that Adani “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

It said the report also provided evidence that Vinod Adani, Gautam Adani’s brother, and close associates controlled a vast network of offshore shell entities.

“We detailed how billions were surreptitiously moved through these entities, into and out of Adani public and private entities, often without related-party disclosures. We also detailed how a network of opaque offshore fund operators surreptitiously helped Adani evade minimum shareholder listing rules, citing numerous public documents and interviews to substantiate the allegations,” Hindenburg added.

“Our work on Adani was never justifiable from a financial or personal safety perspective, but it is by far the work we are most proud of,” the short-seller said.

Questions Adani Group’s response to report

Hindenburg also questioned the Adani Group’s response to its report, alleging that at least 40 independent media investigations “corroborated or expounded” on their findings, “presenting evidence of widespread fraud by Adani against shareholders and Indian taxpayers”.

“To this day, Adani has still failed to address the allegations in our report, instead providing a response that ignored every key issue we raised and has offered blanket denials of subsequent media allegations,” Hindenburg said.

Blames Sebi for neglecting responsibilities

The US short-seller also blamed Sebi for neglecting its responsibilities as a market regulator.

Hindenburg stated that instead of targeting those who orchestrated a secret offshore shell network involving billions in undisclosed related-party transactions and stock manipulation through sham investment entities, Sebi seems more focused on pursuing those who expose these practices.

Hitting out at the market regulator, it said, “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.”

‘Zero factual inaccuracies’

Hindenburg Research also noted that after 1.5 years of investigation, Sebi has not identified any factual inaccuracies in its report on the Adani Group.

It highlighted that “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”.

Noting that it is a US-based research firm with “zero Indian entities, employees, consultants or operations”, Hindenburg said, “Some of these arguments seemed circular. For example, the regulator claimed that the disclaimers in our report were misleading because we were “indirectly participating in the Indian securities market,” and, therefore, short Adani.”

“This wasn’t a mystery—virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it,” it added.

Kotak twist

Hindenburg Research also mentioned Kotak Mahindra Bank and brokerage firms founded by Uday Kotak in its response.

“While Sebi seemingly tied itself in knots to claim jurisdiction over us, its notice 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,” Hindenburg said.

Was Adani bet financially justifiable? Hindenburg responds

The short-seller clarified that, contrary to reports that it made millions from shorting Adani stocks, it did not make a huge profit from it.

“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 US bonds held into the report. (It was a tiny position.),” Hindenburg said.

Taking into account legal and research expenses, Hindenburg said it may “come out ahead of breakeven” on its Adani short.

“There was never a point where the Adani thesis was financially justifiable for us. It was even less justifiable from a personal risk and safety perspective,” it added.

In addition, the short-seller also clarified that it had one investor relationship in its Adani thesis, contrary to media reports.

However, Hindenburg said, “To date, our research on Adani is by far the work we are most proud of.”