United States-based firm Hindenburg Research on Monday said that it had received a show cause notice from the Securities and Exchange Board of India outlining alleged violations in placing bets on stocks of Adani Group.

The American short-seller said that the 46-page show cause notice by the Indian markets regulator was “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”.

“Our understanding from discussions with sources in the Indian market is that SEBI’s surreptitious aid of Adani commenced almost immediately post-publication of our January 2023 report,” said Hindenburg in its response to the notice.

On January 24, 2023, Hindenburg published a report alleging that the Adani Group was involved in accounting fraud and money laundering.

The firm alleged that the conglomerate was pulling off the “largest con in corporate history”. The Adani Group rejected these allegations, but the report hurt the stock prices of its listed companies and had wiped out more than $100 billion in investors’ money.

In March 2023, the Supreme Court ordered the Securities and Exchange Board of India to conduct an inquiry into the matter.

On Monday, Hindenburg alleged that following the publication of its January 2023 report, it was told 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”.

It stated that while publishing the report, the firm had disclosed that it held a short position on Adani. This means the firm had anticipated a fall in the value of the stocks of the conglomerate’s firms and had traded on them.

“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,” said Hindenburg on Monday. “Note that we are a US-based research firm with zero Indian entities, employees, consultants or operations.”

Hindenburg also said that the notice by the Securities and Exchange Board of India “conspicuously failed to name” Kotak Bank, which it claims had created and overseen the offshore fund structure used by the short-seller’s investor partner to bet against Adani stocks.

It added, “Instead it simply named the K-India Opportunities fund and masked the ‘Kotak’ name with the acronym ‘KMIL’ [Kotak Mahindra Investment Limited].” Kotak Mahindra International Limited, however, said that Hindenburg was never an investor in the K-India Opportunities Fund.

The American short-seller alleged: “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.”

Without naming the investor, Hindenburg said it made $4.1 million in gross revenue through gains related to Adani shorts “from that investor relationship”. Hindenburg said that it had itself made $31,000 through its short position of the conglomerate’s United States bonds.

“Net of legal and research expenses [including time, salaries/compensation, and costs for a 2-year global investigation] we may come out ahead of breakeven on our Adani short,” it said.

Hindenburg also criticised the Securities and Exchange Board of India, alleging that the markets regulator was “doing more to protect those perpetrating fraud than to protect the investors being victimized by it”.

Hindenburg was never our client, says Kotak

On Tuesday, Kotak Mahindra International Limited and K-India Opportunities fund said that Hindenburg has never been a client of the firm, nor has it ever been an investor in the fund.

The bank said that K- India Opportunities Fund Limited is a Foreign Portfolio Investor registered with the Securities and Exchange Board of India and is regulated by the Financial Services Commission of Mauritius.

“The Fund, was established in 2013 to enable foreign clients to invest in India,” the spokesperson of the Kotak Mahindra International Limited said. It added that the K- India Opportunities Fund follows due Know Your Customer procedures while onboarding clients and all its investments are made in accordance with all applicable laws.

“The [K- India Opportunities] fund was never aware that Hindenburg was a partner of any of its investors,” it said. “KMIL [Kotak Mahindra International Limited] has also received a confirmation and declaration from the fund’s investor that its investments were made as a principal and not on behalf of any other person.”

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