- Activist short seller Hindenburg Research wiped out $153 billion of Adani Group’s stock price.
- The company recently revealed that it had only made $4 million from its efforts.
- Below are the details of the war of words that has taken place over the past 18 months.
Nate Anderson, the mastermind behind activist short-seller Hindenburg Research, has had an eventful 18 months.
In January 2023, he accused the Indian conglomerate owned by Gautam Adani, one of the world’s richest people, of fraud, wiping out $153 billion in market value from its associated companies. That brought Indian regulators to his door and forced him to defend himself. A war of words has continued ever since.
A year and a half later, the battle continues. And given the new information revealed by Hindenburg, one may wonder whether it was all worth it.
The company, which describes itself as specializing in “financial forensic research,” recently revealed that it had earned just $4 million from its considerable efforts. Compared to the nine-figure market value it helped wipe out and the $80 billion wiped off Adani’s personal fortune, that’s a drop in the ocean.
The following story details the many exchanges that have taken place since Hindenburg first fired a warning shot at Adani Group. The story that follows highlights the lengths a global conglomerate – and the regulator that has a vested interest in keeping it afloat – is going to defend itself. It also shows Anderson’s resolute nature as he continues to fight.
The initial report
In 2023, Hindenburg accused Indian business tycoon Gautam Adani of masterminding the “biggest fraud in corporate history.” It was the result of a two-year investigation that uncovered a number of financial and accounting irregularities across Adani’s empire, the firm said in its 106-page report.
“Indian conglomerate Adani Group has engaged in brazen stock market manipulation and accounting fraud over the past several decades,” the report said. “We believe that Adani Group was able to commit widespread and blatant fraud in broad daylight, in large part because investors, journalists, citizens, and even politicians were afraid to speak out for fear of retaliation,” it later added.
Hindenburg identified at least 38 shell companies closely linked to the Adani group, which it said were engaged in stock market manipulation and money laundering. It cited “numerous examples” of these companies funneling money through private companies owned by Adani, before the money was paid to Adani’s listed companies.
The short-seller investigation also revealed that Adani’s private and public companies had “numerous” undisclosed transactions with other parties, the researchers found, which violate regulatory laws in India.
“The labyrinthine network of shells appears to serve multiple functions, including shifting losses to private entities to boost reported profits and surreptitiously moving money to support group entities,” Hindenburg said.
The Adani group was also affiliated with a number of funds that had “gross irregularities,” the research firm said, including being offshore entities, concealing ownership information and having portfolios “almost exclusively” invested in Adani companies.
One of those funds, Elara, controlled another fund that was about 99% concentrated in Adani shares. This suggested to the researchers that it was “clear that Adani controls the shares,” the report said.
Hindenburg attached a list of 88 questions for Adani to answer, which included inquiries into the billionaire’s close contacts, Adani group executives and investigations into the company by regulators.
“If Gautam Adani is committed to transparency, as he claims, these questions should be easy to answer,” the report said.
The answer
After suffering heavy stock market losses, Adani Group hit back with its own 413-page response, calling the original Hindenburg report “nothing but a lie.”
“We are shocked and deeply disturbed by the report published by the ‘Manhattan Madoffs,'” the response read, referring to Hindenburg.
“The document is a malicious combination of selective disinformation and hidden facts relating to baseless and discredited allegations to fuel an ulterior motive,” he added.
The company has disclosed information about its accounting practices and labor relations, while disputing many of the allegations in the Hindenburg report.
The transactions identified as suspicious by Hindenburg’s team were in compliance with local laws and accounting standards, he added. The offshore companies and funds mentioned in Hindenburg’s report were only public shareholders of companies listed by Adani, he added.
“A listed entity has no control over who buys/sells/owns the listed shares, nor the volume of trading, nor the source of funds of such public shareholders, nor is it required to have such information for its public shareholders under Indian laws. Therefore, we cannot comment on the trading pattern or behaviour of public shareholders,” Adani’s report said.
The company also criticized Hindenburg for its financial interest in the publication of the report, calling the company an “unethical short seller” and guilty of a “flagrant violation of applicable securities and exchange laws.”
“This is a conflict of interest that is designed solely to create a false securities market to enable Hindenburg, a known short seller, to make massive financial gain through illicit means at the expense of countless investors,” he said.
The same day, Hindenburg responded to Adani, denying any wrongdoing in its initial report. According to the researchers, Adani Group’s response failed to answer most of their questions. The conglomerate also failed to dispute the existence of some “suspicious” transactions and failed to explain “their obvious irregularities.”
“We also believe that fraud is fraud, even when perpetrated by one of the world’s wealthiest people,” Hindenburg Research said in its response.
Adani Group finally hired a lawyer and prepared for battle, even though the damage was already done. In less than a week, Adani, known as the third richest man in the world, saw his personal fortune plummet by $52 billion.
Conflict over Hindenburg short sale deal
Indian regulators have raised specific questions about the structure of Hindenburg’s short bet on Adani Group. The Securities and Exchange Board of India (SEC) – the country’s version of the SEC – sent a notice to Hindenburg in June 2024, raising questions about the nature of the report and the firm’s relationship with Kingdon Capital Management, a New York hedge fund involved in building a short position against Adani Group.
Hindenburg’s initial report was called “misleading” and “inaccurate statements.”
“These false statements have constructed a convenient narrative through selective disclosures, reckless statements and eye-catching headlines, in order to mislead the readers of the report and cause panic in the shares of Adani Group, thereby deflating the prices to the maximum and profiting from it,” the notice reads.
Regulators also revealed that Hindenburg had shared its research with Kingdon before publication. The two companies had entered into a profit-sharing agreement, according to the notice, with Hindenburg to receive 25% of Kingdon’s profits for the short bet.
Kingdon ultimately won $22.3 million on the bet, $5.5 million of which was owed to Hindenburg. Of that amount, $4.1 million had been paid as of early June, the document shows.
Hindenburg called the letter “nonsense” and an attempt to deter whistleblowers who expose corruption among the country’s most powerful people and companies.
“One would think that a securities regulator would be interested in meaningfully pursuing the parties who ran a secretive offshore empire engaged in billions of dollars of undisclosed related-party transactions through public companies while supporting its actions through undisclosed stock ownership via a web of sham investment entities,” Hindenburg said in his response.
She added: “Instead, SEBI seems more interested in prosecuting those who expose such practices.”
A passion for “finding scams”
Backlash is nothing new for Anderson, who targeted other prominent financiers and began exposing wrongdoers on Wall Street long before launching Hindenburg Research in 2017.
In that decade alone, he was instrumental in taking down companies in the electric vehicle space. His work on Nikola led to fraud charges against its founder, and he also called out the now-defunct Lordstown Motors for whipping up commercial interest in its product.
More recently, he went after activist investor Carl Icahn and his famous company, Icahn Enterprises.
“Finding scams” has been a lifelong passion, he told The New York Times in a 2021 interview, adding that he spent hours outside of work researching potential schemes, much to the chagrin of some of his former bosses.
“I didn’t plan it that way,” he told the Times. “It was a side hobby that sometimes annoyed my employers.”
Fraud detection is one of his main goals for 2024, he wrote in an article on X in January.
“My professional resolution for the new year 2023 is to work with our @HindenburgRes team to expose some of the world’s biggest financial fraudsters and charlatans,” Anderson wrote. “I am confident that we will achieve this goal.”