The Securities and Exchange Board of India (SEBI) issued a show cause notice, to which Hindenburg Research vigorously responded in a comprehensive blog post dated July 1. The research firm brushed off the notice as a sham and a ploy to dissuade them from speaking out about their fraud claims against the Adani Group. In their counterargument, Hindenburg also emphasized possible infractions of Indian laws.
Background and Initial Reactions
Hindenburg claimed to have received an eerie email from SEBI, which they initially chose to disregard. They didn't realize its importance until they received a follow-up email with the subject line Show Cause Notice. . Sharing the entire notice on Slideshare, they declared it to be nonsense contrived to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud committed by the most powerful people in India.
The research company observed that SEBI was having trouble reacting to a U.S.-based organization without any activities in India subsequent to Hindenburg's accusations that the Adani Group was responsible for the biggest scam in corporate history. . As they asserted that their report was accurate and thorough, Hindenburg expected significant resistance. They drew comparisons with the Indian government's actions against critical journalists and members of parliament, accusing SEBI of concentrating more on those who expose fraud than on addressing the allegations.
Key Points from Hindenburg’s Rebuttal
- Context Around Allegations and Show Cause Notice:
- Hindenburg's original report was a detailed 106-page document with 32,000 words and 720 citations, alleging that Adani engaged in stock manipulation and accounting fraud over decades.
- They described a vast network of offshore shell entities controlled by Gautam Adani’s brother, Vinod Adani, which were used to move billions surreptitiously.
- Hindenburg’s findings were corroborated by at least 40 independent media investigations following their report.
- The firm noted Deloitte’s resignation as Adani Ports' statutory auditor, citing undisclosed related-party transactions as flagged in Hindenburg’s report.
- SEBI’s Alleged Aid to Adani:
- Hindenburg alleged that SEBI aided Adani post-publication of their report by pressuring brokers to close short positions in Adani, thereby stabilizing the stock price.
- SEBI’s reluctance to thoroughly investigate the allegations, as indicated in court documents, was highlighted.
- Hindenburg is seeking transparency on SEBI’s investigative process through an RTI, focusing on interactions between SEBI and Adani representatives.
- SEBI Found No Inaccuracies in Research:
- Despite extensive investigations, SEBI identified no factual inaccuracies in Hindenburg’s Adani research.
- SEBI’s notice focused on issues like word usage and alleged corruption charges against SEBI itself, rather than the substance of Hindenburg’s allegations.
- The regulator’s claims included objections to Hindenburg’s description of past fraud instances and the use of terms like “scandal.”
- Financial Gains from the Adani Report:
- Contrary to media reports of massive financial gains, Hindenburg disclosed they made only ~$4.1 million through their short position related to Adani.
- The firm emphasized their resolve to publish the report despite financial and personal risks, asserting that their motivation was the public interest.
- SEBI’s Role in Investigating Adani Allegations:
- Hindenburg criticized SEBI for neglecting its duty to protect investors from fraud.
- They argued that the regulator’s actions send a message of inadequate investor protection in India and the influence of powerful businessmen over regulatory processes.
- Despite anticipated bans or fines, Hindenburg vowed to continue exposing corporate malfeasance globally.