Corporate Grapevine     

Published: July 15, 2024
Updated: July 15, 2024

SEBI’s ‘biased’ investigation

The Supreme Court has given a clean chit to the Adanis and has instructed SEBI to probe entities involved in short selling of Adani group shares in January this year. In line with this, SEBI has issued a show-cause notice to US-based short seller Hindenburg Research. SEBI’s investigation exposed six entities, including Hindenburg, ‘conspiring’ to take short positions in Adani shares. Hindenburg shared the report with US -based client Mark Kingdon who shorted on Adani group shares just before a Rs 20,000 crore follow-on offer by Adani Enterprises was launched in January 2023.

But instead of addressing SEBI’s queries, Hindenburg has started attacking SEBI, calling it ‘biased’. Hindenburg agreed to take a 25 per cent profit cut from shorting, resulting in millions of dollars in profit. Afterall Hindenburg is a short seller by profession.

Chats from Kotak Mahindra bank executives, mentioned by SEBI in its show-cause notice, shows Kotak set up offshore funds to route money and take short positions in Adani futures, generating profits of $ 22.11 million.

Hindenburg claims to have carried out an extensive investigation, yet relies heavily on news articles and press notes. Now it is trying to make people believe it didn’t profit from Adani shorts, using self-reported numbers on its website without proof.

‘FIXED’ REPORT

Hindenburg knowingly presented certain inferences in its report based on misleading statements, creating a sensational report with a more negative impact than straightforward facts would have done. Despite claiming small profits from shorting Adani, SEBI’s investigation reveals that Hindenburg also made $9.2 million by taking short positions in ETFs and options on the MSCI India Index, and trading in bonds of Adani Electricity Mumbai, AGEL and APSEZ.

SEBI found that Hindenburg misrepresented Supreme Court judgments, and alleged government corruption and bribery without proof. But Indian market regulator will have a tough task bringing Hindenburg to justice as the latter is expected to litigate in the US courts.

As per noted lawyer Mahesh Jethmalani, Hindenburg was hired by American businessman Mark Kingdon to prepare a report on the Adani Group. Kingdon approached Kotak’s International arm to set up an offshore fund and offshore accounts to trade in Adani shares, following which Kotak India Opportunity Fund (KIOF) was set up

KIOF took large short positions on Adani shares through the Mauritius route before the preparation of the Hindenburg report. The funds for the trade ($40 million) were provided by Kingdon’s Master Fund, a substantial shareholding in which is owned by the Kingdon family, including his high-profile wife Anla Cheng.

As per Jethmalani, some issues need to be thoroughly investigated: Who introduced the Kingdons to KMIL? What due diligence was conducted by KMIL regarding the Kingdons and did it participate in the short sell as a principal? Did all the Indian actors -- politicians, businessmen and financial intermediaries who aided Hindenburg with the preparation of its Adani report and its publication after the short sale know about its short-selling motives and did they financially benefit from it?

Observers are shocked at the so called ‘investigation’ carried out by SEBI it seems that might have done. This at the instance of the government and to please the powrs that be who are promoting Adanis.