Following last year's Adani controversy, Hindenburg Research has teased another major revelation in India. On Saturday, the US short-seller posted on X (formerly Twitter), stating, "Something big soon India." Their previous report, released on January 24, sharply criticized the Adani Group right before its planned share sale, resulting in an $86 billion drop in the group's market value and a significant sell-off of its internationally listed bonds.

Recent Kotak Involvement

The Securities and Exchange Board of India (SEBI) has disclosed new details in the Adani-Hindenburg saga, highlighting the links between US-based short-seller Hindenburg Research and New York hedge fund manager Mark Kingdon. SEBI's findings indicate that Hindenburg provided Kingdon with an advance copy of its report on the Adani Group about two months before its public release, allowing for substantial profits through strategic trading.

In a comprehensive 46-page show-cause notice, SEBI revealed that Hindenburg Research and Kingdon Capital Management had signed a "Research Agreement" in May 2021. This agreement allowed the draft report—nearly identical to the final version released in January 2023—to be shared in advance. The report, which accused the Adani Group of executing "the largest con in corporate history," triggered a market value drop of over $150 billion across Adani’s listed companies.

SEBI's notice

SEBI's notice reveals that Kingdon Capital, which holds significant stakes in Kotak Mahindra Investments Limited (KMIL), capitalized on the market upheaval caused by the Hindenburg report. Before the report's release, Kingdon Capital invested $43 million to short Adani Enterprises Ltd (AEL) and later closed these positions for a profit of $22.25 million. The notice also includes time-stamped communications between Kingdon Capital employees and KMIL traders about the sale of futures contracts in Adani Enterprises.

The release of the Hindenburg report on January 24, 2023, caused a dramatic 59% decline in Adani Enterprises Ltd (AEL) stock, plummeting from Rs 3,422 to Rs 1,404.85 per share within a month. SEBI's investigation reveals that the K India Opportunities Fund Ltd, managed by Kingdon Capital, began trading in AEL derivatives just before the report's publication and profited from the ensuing market reaction.

Kingdon Capital defended its actions, asserting that entering into research agreements and acting on pre-publication reports was legally permissible. The firm also claimed that Kotak Mahindra Bank had no prior knowledge of its dealings with Hindenburg or the use of sensitive information. Kotak Mahindra Bank denied any involvement or prior knowledge of these activities.

In response to SEBI's allegations, Hindenburg criticized the regulator for attempting to "silence and intimidate" those uncovering corruption. The short-seller accused SEBI of focusing on its activities while failing to investigate the alleged financial misconduct by the Adani Group.

The notice from SEBI could lead to legal consequences, including financial penalties and restrictions on market activities for those implicated. Hindenburg has been given 21 days to respond.