US-based short seller Hindenburg Research revealed on Monday, July 1, that the Indian regulatory body Securities and Exchange Board of India (SEBI) had sent it a show cause notice over the publication of a report containing findings on the Adani Group led by Gautam Adani. 

Hindenburg’s response to SEBI was strongly worded, with the investment research firm saying that instead of being interested in meaningfully pursuing the scandal exposed by their report, the securities regulator “SEBI seems more interested in pursuing those who expose such practices.” They stated, “SEBI’s job as a securities regulator is to detect and stop the types of malfeasance that we exposed. In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it.” The auditing company also added that the show cause notice was an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.

SEBI’s notice, which was purportedly sent on June 27, was concerning “the matter of trading activities of certain entities in the scrip of Adani Enterprises Limited immediately preceding and post publication of Hindenburg Report.”

The report published in January 2023, had stated that Adani “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” Hindenburg called out the conglomerate's "substantial debt", which includes pledging shares for loans; that Adani's brother Vinod "manages a vast labyrinth of offshore shell entities" that move billions into group companies without required disclosure; and that its auditor "hardly seems capable of complex audit work".

Following the report, Adani Ports’ statutory auditor Deloitte Haskins & Sells LLP resigned from the role in August 2023. Deloitte alleged that the Adani Group did not consider getting an external inquiry done into the allegations made by US-based short-seller Hindenburg Research because of the ongoing investigation by SEBI. The auditing company further alleged that Adani was engaging in financial transactions with parties mentioned by Hindenburg but had told Deloitte that they were not related. 

The short seller’s response to SEBI also said that the show cause notice issued to them “is broadly in line with the actions of other elements of the Indian government that have sought to arrest four journalists for writing critical articles about Adani and expelled members of parliament who were critical of Adani.” 

Read: Why OCCRP refused to give Adani documents to SEBI

The response said the SEBI notice did not even once call the findings of the report false. Instead, they said that the regulatory body took offence with the use of words like “scandal” and “leniency” in describing the dealings made by the Adani Group and the actions taken by SEBI. Hindenburg said, “As far as alleged “inaccuracies” with our research, that was all SEBI came up with: nothing.” Pointing out SEBI’s argument discrediting the report as Hindenburg were “indirectly participating in the Indian securities market”, the auditing company said they had repeatedly disclosed it in their reports.

Hindenburg also accused SEBI of providing surreptitious aid to Adani immediately following the publication of the report in January 2023. They claimed to have learned that “SEBI pressured brokers behind-the-scenes to close short positions in Adani under the threat of expensive, perpetual investigations, effectively creating buying pressure and setting a ‘floor’ for Adani’s stocks at a critical time.” Hindenburg also observed that SEBI appeared to flounder when pressed to investigate the matter by the public and the judiciary, and that court documents underscored its inability or unwillingness to investigate serious allegations against Adani.

The response from Hindenburg also accused SEBI of “protecting yet another powerful Indian businessman” by making no mention of Kotak Bank. It said that the bank “created and oversaw the offshore fund structure used by our investor partner to bet against Adani”. “We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace,” Hindenburg said. 

Pointing out SEBI’s argument discrediting the report as Hindenburg were “indirectly participating in the Indian securities market”, the auditing company said they had repeatedly disclosed that a decline in Adani's share would benefit them in their reports. Hindenburg also stated that the firm “may come out ahead of breakeven” on the Adani short. “We have made ~$4.1 million in gross revenue through gains related to Adani shorts from that investor relationship. We made just U.S.~ $31,000 through our own short of Adani U.S. bonds held into the report,” they said. 

Hindenburg Research is “in the process of filing an RTI seeking the names of SEBI employees that worked on both the Adani matter and the Hindenburg matter, along with basic details on meetings and calls between SEBI and Adani and its various representatives. We will await SEBI’s response on whether it will provide basic transparency on its investigations.”