‘Attempt To Silence…’: Hindenburg Hits Back On SEBI Show Cause Notice Over Adani Issue

New Delhi: US-based short seller Hindenburg Research claimed that it has received a ‘show cause’ notice from Securities and Exchange Board of India (Sebi) “outlining suspected violations of Indian regulations” over its alleged short bet against Adani Group last year.

Responding to it in a blog post on July 1, the firm said it received a “bizarre email” on June 27, that it only realised was from the official SEBI email after a follow-up email titled ‘Show Cause Notice’.

“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…. 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,” it said.

Calling the show cause notice “nonsense”, the New York firm said it was “an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.”

Last year, Hindenburg Research had accused the Adani Group of improper use of tax havens and flagged concerns about debt levels, triggering an $86 billion rout in its domestically listed stocks and a sell-off in its bonds listed overseas.

“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.”

“Later, Sebi claimed to be unable to investigate further,” it said.

The firm claimed that Gautam Adani met Sebi Chairperson Madhabi Puri Buch twice in 2022, and attributed “the confidence’ in Adani Group’s Chief Financial Officer Jugeshinder Singh’s statement that some regulator notices aimed toward the group were “trivial” to Adani’s relationship with Sebi. “In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it,” it said.

Hindenburg Research said that it would file a right to information (RTI) application “seeking the names of Sebi employees that 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.”

Slamming the conglomerate, the short seller said, “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.”

Further, Hindenburg Research said while, the SEBI seemingly tied itself in knots to claim jurisdiction over the firm, it “conspicuously failed to name” Kotak Bank, which created and oversaw the offshore fund structure used by its investor partner to bet against Adani. “Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL”.

However, it did not disclose the name of the investor.

It added, “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.”

In the 46-page notice, which Hindenburg attached with the post, Sebi said that the report released in January last year “contained certain misrepresentations/inaccurate statements” meant to “mislead readers”.