Adani vs Hindenburg: SEBI goes after $22 mn loot
India's markets regulator, SEBI, is pursuing a case to recover $22 million in alleged profits from trades that reportedly benefited from prior knowledge of Hindenburg Research's critical report on Adani Group. The Securities and Exchange Board of India (SEBI) contends that U.S.-based Kingdon Capital Management and the Kotak International-linked Mauritius fund engaged in short-selling before the Hindenburg report was published in 2023.
Short-selling involves selling borrowed shares, buying them back at a lower price, and pocketing the difference. In 2023, Hindenburg's report alleged that Adani Group had violated securities laws, leading to a selloff and a significant drop in the group's value, estimated at $150 billion. Adani Group vehemently denied any wrongdoing, and SEBI had previously dismissed the allegations of stock manipulation.
SEBI's investigation revealed that six entities gained $22.25 million from the short-selling trades. The regulator has initiated personal hearings, more than two years after the case began, as the parties involved have been taking their time to respond. All parties involved are located overseas, but SEBI believes it has jurisdiction since the trades took place in India.
To secure assets for recovery, SEBI has opposed court-supervised insolvency proceedings in Mauritius for the Kotak fund, specifically the K India Opportunities Fund Class F, which was used to execute the trades. The proceeds of the trades went into this fund. SEBI has also asked the court-appointed receiver in Mauritius to ensure that fund assets are not transferred or distributed before it can recover the alleged gains and interest.
The case has set a precedent for the pursuit of offshore entities and the recovery of assets overseas. SEBI is proceeding with enforcement, arguing that the trades were based on non-public information, violating rules aimed at preventing fraud. However, whether the gains were distributed or redeemed by Kingdon as the fund beneficiary remains undisclosed.
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