India’s securities regulator, SEBI, has accused Hindenburg Research and Kotak Mahindra Bank of illegal short selling activity in connection with Adani Enterprises. The investigation centers around a report by Hindenburg that alleged financial irregularities within the Adani Group.
Key Findings of SEBI’s Investigation
- Advance Knowledge of Non-Public Information: SEBI claims Hindenburg shared a draft of its report with investor Mark Kingdon before it was publicly released. This allegedly allowed Kingdon to build short positions in Adani Enterprises futures, anticipating a decline in share price.
- Profit Sharing Agreement: SEBI alleges Hindenburg agreed to a reduced profit share (25% instead of 30%) with Kingdon in exchange for early access to the report.
- Kotak Mahindra’s Role: SEBI claims Kotak Mahindra Investment Ltd (KMIL) established an offshore fund (K-India Opportunities Fund) specifically for Kingdon to short sell Adani shares. This fund reportedly generated significant profits ($22.11 million) from the short selling activity.
- Market Manipulation: SEBI alleges Hindenburg’s report contained misleading information intended to manipulate the market and drive down Adani’s share price.
Responses from the Accused:
- Hindenburg: Denies any wrongdoing and maintains its report was based on factual information. They claim they never had a direct or indirect business relationship with Kotak Mahindra.
- Kotak Mahindra: Denies any knowledge of Hindenburg’s short selling activities and affirms adherence to KYC (Know Your Customer) procedures. They claim the K-India Opportunities Fund operated independently and all investments complied with regulations.
Potential Consequences
- SEBI has issued show cause notices to Hindenburg, Nathan Anderson (Hindenburg owner), Mark Kingdon, and Kotak Mahindra. These notices outline the allegations and provide an opportunity for the accused to respond.
- Potential penalties could include fines, trading restrictions, or even a ban on operating in the Indian securities market.
Impact on Adani Enterprises
The Hindenburg report triggered a significant drop in Adani Enterprises’ share price. The company was forced to withdraw its follow-on public offer (FPO) to protect investor interests.
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