Hindenburg Receives Show Cause Notice from SEBI

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Hindenburg Research has publicly dismissed as ‘nonsense’ a purported show cause notice from the Securities and Exchange Board of India (SEBI). The notice alleges that the short-selling hedge fund engaged in fraudulent and unfair trade practices concerning trading in Adani Enterprises’ stock and violated Indian regulations.

The US-based investment research firm asserted on its website that the notice from SEBI has 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.” It added that SEBI appeared to be more interested in “pursuing those who expose such practices.”

Calls and text messages to a SEBI spokesman to verify the authenticity of the show cause notice did not elicit any response.

In January 2023, the hedge fund released a 106-page report on the Adani Group, claiming the group had engaged in brazen stock manipulation and accounting fraud schemes over several decades. The report caused Adani group stock prices to plummet, wiping out over $100 billion of investor wealth in the shares.

The group was virtually given a clean chit by a Supreme Court-mandated committee investigating the allegations, and subsequent cases were dismissed. An investigation by SEBI also remained inconclusive.

Hindenburg stated on its website that SEBI has neglected its responsibility to detect and stop frauds, seemingly doing more to protect those perpetrating fraud than to protect victimized investors.

According to the SEBI show cause notice, a link to which was put up by Hindenburg on its website, the 2023 Hindenburg report contained “certain misrepresentations/inaccurate statements. These misrepresentations built a convenient narrative through selective disclosures, reckless statements, and catchy headlines, intending to mislead readers and cause panic in Adani Group stocks, thereby deflating prices to the maximum extent possible and profiting from the same.”

The notice also stated that the disclaimer by the short seller about holding positions in the Adani group stock “only through non-Indian traded securities was misleading since it concealed the complete extent of its financial interest in companies which were the subject of its research report due to Hindenburg’s direct stake in profits from positions taken by the FPI in the future of AEL on the Indian stock exchange.” It added that the statement portraying the non-association of Hindenburg with the Indian markets was not true.

The notice has directed Hindenburg Research to show cause as to why inquiries should not be held against them and directions for disgorging profits unlawfully made.

A reply has been sought within 21 days of receipt of the notice, and they have been asked to indicate their preference for a personal hearing on the matter.

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