When Nathan Anderson’s Hindenburg Research last year put out its 100-page report alleging fraud and stock manipulation at India’s Adani Group — a massive conglomerate run by one of the wealthiest men in the world — the biggest mystery was how he managed to pull it off.
The short report accused founder and group chairman Gautam Adani of “pulling the largest con in corporate history” and shook markets, immediately boosting Anderson’s already formidable reputation. Shares of the Adani empire quickly fell by $153 billion, and Adani’s personal fortune likewise plummeted.
Hindenburg is headquartered in New York City and has no known ties to India, where short selling is notoriously difficult, and securities laws onerous. Other short sellers said they are wary of publicizing short research about companies in countries like India where freedom of expression doesn’t have the protections afforded it in the U.S, and where insider trading is more expansively defined. The cost of defending oneself could easily outdo the profits made from the short, they argued.
So where had the idea and the research come from? And, who was the money behind Hindenburg?
Hindenburg reportedly got the idea and much of the research from an Indian analyst whose name is still unknown. But now, thanks to Hindenburg’s disclosure of a “show cause” notice received via email from the Securities and Exchange Board of India, or SEBI, the mysterious backer of Hindenburg has been revealed.
In the order, SEBI disclosed that Anderson’s partner was Kingdon Capital, a hedge fund that isn’t particularly known for short selling. The hedge fund, which Mark Kingdon launched in 1983, ran close to $7 billion at its peak in 2007 but has been diminished since the financial crisis. As of the end of 2023 it had only about $823 million, according to its latest ADV filing with the Securities and Exchange Commission. Kingdon is cooperating with the Indian authorities. Kingdon declined to comment.
“We had one investor partner, and net of costs we may barely come out above breakeven,” Hindenburg said in a statement on its website. “Our work was never justifiable from a financial or personal safety perspective. But it is by far the work we are most proud of.” The hedge fund declined to comment further.
Anderson said he made only $4 million on his Adani short and defended it last week, linking to the notice the firm received via email. “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.”
According to the SEBI notice, Hindenburg approached Kingdon about the potential Adani short and came to an agreement to exclusively offer the report to Kingdon ahead of publication and receive about 30 percent of the profits made on the trade after the report was released. (That amount was later whittled down to 25 percent.) According to the SEBI notice, Kingdon received the report three months before it was published.
Such so-called balance sheet arrangements are common in the U.S. While somewhat controversial, last month the SEC reached a settlement with Anson Funds in a case that seemed to validate such arrangements. Kingdon said it had received assurances from its attorneys that the arrangement was legal in the U.S, according to the SEBI notice.
Hindenburg also said its short-selling activity followed all legal and regulatory procedures in India.
But Indian legal experts aren’t so sure. “SEBI seems to have a prima facie good case against Hindenburg Research and its partner for indulging in short selling based on unpublished price-sensitive information,” said Ankur Loona, managing partner of Alliance Law, as quoted in Business Standard, an Indian business publication. He said that SEBI has jurisdiction over all persons, whether in India or overseas, dealing in or associated with the Indian securities market.
After reaching the agreement with Hindenburg, Kingdon set up a special fund, the Mauritius-based K India Opportunities Fund, to invest in India to make the trade, which it placed through a major Indian bank, Kotak Mahindra (International).
The K India fund built short positions for 850,000 shares a few days before the report became public, making them through futures contracts. After Adani’s shares dropped, it made $22.3 million on the trade, according to SEBI.
SEBI criticized Hindenburg’s report for “misrepresentations [that] built a convenient narrative through selective disclosures, reckless statements and catchy headlines in order to mislead readers of the report and cause panic in Adani group stocks, thereby deflating prices to the maximum extent possible.”
It said that Hindenburg also violated local securities laws by publishing the report, since it wasn’t registered as a research firm in India.
In its defense, Hindenburg said that following its initial Adani report, “at least 40 independent media investigations corroborated or expounded on our findings, presenting evidence of widespread fraud by Adani against shareholders and Indian taxpayers.”
It noted that the Indian government has sought to arrest four journalists for writing critical articles about Adani and expelled members of parliament who were critical of Adani as well.
Adani is known to have close ties to Narendra Modi, who recently won re-election as India’s prime minister.
Since the furor over Hindenburg’s report last year, Adani shares have recovered most of their losses, and Gautam Adani is now worth $85.6 billion, according to Forbes.
