The Wire Staff 
New Delhi: The US-based short seller Hindenburg Research has said that the market regulator Securities and Exchange Board of India slapped ‘show cause’ notices on it before and after it released a report on the firms attached to the Adani group.
In 2023, Hindenburg Research had accused the Adani group of “brazen stock manipulation” and “accounting fraud scheme” in January last year, noting that the company is “pulling the largest con in corporate history”. The Adani group had rejected all these allegations.
As The Wire has noted before, the report by Hindenburg gave way to several investigations, including by the Morning Context, OCCRP and Financial Times, that have highlighted alleged malpractices by the Adani group, particularly in its use of offshore havens.
In a statement posted to its website, Hindenburg included the 46-page show cause notice from SEBI.
It said that the firm had been aware that SEBI has been “grappling with” how to respond to an US firm with no presence or operations in India after their Adani reveal.
Then it said, it received two emails on June 27:
“On the morning of June 27, 2024, our firm received a bizarre email, ostensibly from SEBI, alerting us that SEBI had flagged its own message to us that we never received as an apparent security risk, and that the regulator had “quarantined” it for its own safety.
“This, at first, struck us as a possible targeted phishing attempt. It was only later that day that we received another email, again ostensibly from SEBI, with a ‘Show Cause’ notice, a letter from the regulator outlining suspected violations of Indian regulations.”
Hindenburg called the notice “nonsense,” and one that had been “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.”
SEBI’s notice said that its analysis of trading during the period immediately before and after the release of Hindenburg’s report found that a foreign portfolio investor called K India Opportunities Fund Ltd opened a trading account and started trading in the scrip of AEL just a few days before the report was published.
It then – as explained by Indian Express – squared-off its entire short position post-publication of the Hindenburg report, making profit of Rs 183.24 crore.
According to Hindenburg, the K in K India Opportunities Fund stands for Kotak Bank, founded by Uday Kotak, who SEBI was keen to protect.
“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. Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL”.
“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.
Reuters, which has spoken to sources who confirmed the authenticity of the notice, said that SEBI alleged that Hindenburg colluded with its client Kingdon Capital Management by providing a draft of its report on Adani Group before it was released publicly.
SEBI alleges that Mark Kingdon, the owner of Kingdon Capital, then set up a fund able to trade Indian equities like K Indian Opportunities Fund.
Hindenburg alleged that 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.”
Note that we are a US-based research firm with zero Indian entities, employees, consultants or operations, it added.
Some of these arguments seemed circular, Hindenburg further alleged. “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, were short Adani. [Pg. 30] This wasn’t a mystery – virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it.”