In a startling development, Hindenburg Research has been accused by India’s securities regulator, SEBI, of colluding with a US asset manager to manipulate markets through insider information while shorting Adani Group stocks. The allegations, outlined in a “show cause” notice, claim Hindenburg provided a draft of its damning report on Adani to the asset manager before its public release, allowing them to profit from short positions. Hindenburg vehemently denies these accusations, dismissing them as baseless and claiming SEBI is neglecting its duty to protect investors. The scandal has rocked financial circles, raising questions about transparency and legality in global markets.

As reported by Al Jazeera, Hindenburg Research has disputed charges by India’s securities regulator that it collaborated with a US asset manager to build up a short bet against Adani Group last year, which, if proven, would violate the country’s regulations.

Hindenburg uploaded a copy of a 46-page “show cause” notice from the Securities and Exchange Board of India (SEBI) summarizing the charges on its website on Monday, adding to a controversy that began last year when a US-based short seller accused Adani of unethical business conduct.

The notification stated that six businesses, including Hindenburg, Kingdon Capital Management, and a Mauritius-based trading fund established by Kotak Mahindra Bank, violated several provisions under the Prevention of Fraudulent and Unfair Trade Practices legislation. In a statement, Hindenburg denounced it as “nonsense”.

Kingdon did not respond to Reuters’ emailed request for comment on Tuesday. Hindenburg’s statement made no mention of its relationship with Kingdon and did not respond to an email seeking comment.

“SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it,” Hindenburg said in a statement on the warning, which two SEBI sources with direct knowledge of the situation verified to Reuters was genuine.

SEBI stated in the notification that it obtained information from or through the US Securities and Exchange Commission (SEC) throughout its investigation.

Adani, which has continually rejected Hindenburg’s charges, lost up to $150 billion in combined market value following the revelation, although its share price has subsequently rebounded to previous levels.

On Tuesday, SEBI did not react to a request for comment on either Hindenburg’s comments or the show cause letter. If proven, the claimed breaches may result in financial fines and the restitution of any illicit gains.

Hindenburg reported in its statement that it earned $4.1 million in gross revenue from “gains related to Adani shorts from that investor relationship” and only $31,000 from its short position in Adani’s US bonds. It did not name the investor.

“It was a tiny position,” said Hindenburg, whose statement gives some light on its Adani short, which piqued the interest of other investors due to India’s securities laws making it difficult for foreigners to gamble against Indian companies.

SEBI allegations

SEBI alleges that Hindenburg collaborated with its client Kingdon Capital Management by sharing a draft of its Adani Group report before it was made public.

SEBI argues that Mark Kingdon, the owner and creator of Kingdon Capital, subsequently established the K India Opportunities Fund, which can trade Indian equities. That fund opened short positions in Adani group equities from January 10, 2023, until January 20, 2023, five days before Hindenburg’s report was released.

Kingdon, which was founded in 1983, had $639.2 million in assets under administration as of January, according to an SEC filing.

According to the filing, Kingdon maintains two strategies: a global long-short equities strategy, which can additionally invest in credit, government securities, commodities, and currencies as needed, and a long-short strategy focusing on healthcare.

Hindenburg stated that a Mauritius-registered unit of India’s Kotak Mahindra Bank established and managed an offshore fund structure utilized by its “investor partner” to bet against Adani’s stock.

Kotak Mahindra Bank said in a stock exchange statement late on Tuesday that neither the K India Opportunities Fund nor Kotak Mahindra International were aware that Kingdon businesses had any ties to Hindenburg.

The bank said it received a notification of complaints from the regulator, but no regulatory action had been taken against the fund.

Kotak Mahindra Bank’s shares tumbled as much as 3.93 percent on Tuesday.

Last year, GreatGameIndia reported that following the Hindenburg fallout—a report that wiped out $140 billion from Gautam Adani’s empire—the Adani Group suspended work on the Rs 34,900 crore petrochemical project at Mundra in Gujarat.