Synopsis: Hindenburg Research has accused SEBI of issuing a misleading 'show cause notice' intended to intimidate those who expose corruption and fraud in India. Hindenburg's note criticizes SEBI for its convoluted jurisdictional claims and for not naming Kotak Bank, which has direct ties to India and was involved in the offshore fund structure used by Hindenburg's investor partner to short Adani stocks.
Hindenburg Research has alleged that while SEBI seemingly entangled itself in jurisdictional claims, the regulator failed to name the party actually connected to India.
Hindenburg Research, whose report on the Adani group last year led to a $150 billion decline in Adani stocks, has released a note stating that it received a 'show cause notice' from SEBI.
The firm called the notice "nonsense, concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India."
The initial sections of SEBI's 46-page show cause notice provided background on the Hindenburg report’s publication and explained its relationship with an investor that held a short position in Adani.
"Much of the notice seemed designed to imply that our legal and disclosed investment stance was something secret or insidious, or to advance novel legal arguments claiming jurisdiction over us. Note that we are a US-based research firm with zero Indian entities, employees, consultants, or operations. Some of these arguments seemed circular," Hindenburg stated.
For example, Hindenburg mentioned that SEBI claimed the disclaimers in its report were misleading because it was indirectly participating in the Indian securities market, thereby shorting Adani.
"This wasn’t a mystery—virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it," the firm said.
Hindenburg alleged that SEBI, in its attempt to claim jurisdiction over Hindenburg, conspicuously failed to name Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak.
Kotak Bank created and oversaw the offshore fund structure used by Hindenburg's investor partner to bet against Adani.
"Instead, SEBI simply named the K-India Opportunities fund and masked the 'Kotak' name with the acronym 'KMIL'. Uday Kotak, founder of the bank, personally led SEBI’s 2017 Committee on Corporate Governance. 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 argued.
To recall, Hindenburg Research had published a 106-page, 32,000-word report last year, including 720 citations, alleging that the Adani group engaged in a brazen stock manipulation and accounting fraud scheme over decades.
In conclusion, Hindenburg Research has criticized SEBI for issuing a 'show cause notice' that it claims is designed to intimidate and silence those exposing corruption and fraud in India.
The firm argues that SEBI's efforts to assert jurisdiction over Hindenburg were convoluted and failed to address key parties with actual ties to India, such as Kotak Bank.
This controversy highlights ongoing tensions and raises questions about regulatory transparency and accountability in handling allegations against powerful entities.
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