- SEBI presses on against Hindenburg and Kingdon over Adani-linked trades
- Regulator says six entities pocketed $22.25 million from short-selling
- SEBI blocks Mauritius insolvency bid to lock down fund assets
INDIA's markets regulator is digging in against Hindenburg Research and Kingdon Capital Management, starting to hear representations as it fights to recover gains it suspects benefited from prior knowledge of Hindenburg's scathing report about Adani Group, two people with knowledge of the matter told Reuters.
The Securities and Exchange Board of India (SEBI) in 2024 said US-based Kingdon Capital Management built short positions in Adani-related stocks through a Mauritius-based fund linked to Kotak International before Hindenburg published its report.
Short positions refer to selling borrowed shares, buying them back when the share price drops, then pocketing the difference.
Short seller Hindenburg in its 2023 report said Adani Group had violated securities law, triggering a selloff of related shares and a consequent drop in their prices, and wiping out $150 billion in group value. Adani Group denied wrongdoing.
SEBI dismissed Hindenburg's allegations of stock manipulation against the group.
In 2024, SEBI detailed a profit-sharing agreement between Hindenburg and Kingdon and said six entities gained $22.25 million from short-selling trades, Reuters reported.
Hindenburg has hit back hard, previously denying wrongdoing and describing SEBI's assertions as "nonsense".
Hindenburg founder to close short-seller behind Adani selloffs
The case is widely regarded as setting a precedent in the pursuit of offshore entities and the recovery of assets overseas. It has already involved the rare attempt of seeking a stay in a foreign insolvency proceeding to enforce penal action.
SEBI has started personal hearings more than two years later as the parties involved took time to respond, the people said. All parties are based overseas but SEBI believes it has jurisdiction since the trades were in India, they said.
SEBI is pushing ahead with enforcement, arguing that the trades were based on non-public information and so violated rules aimed at preventing fraud, said one of the people.
To lock down assets for recovery, SEBI has opposed court-supervised insolvency proceedings in Mauritius for the Kotak fund – K India Opportunities Fund Class F – used to execute the trades, the people said. Proceeds of the trades went into the fund, they said.
India top court backs regulator clean chit to Adani Group
After learning of the insolvency, SEBI moved fast, asking the court-appointed receiver in the first week of July to ensure fund assets were not transferred or distributed before it had ordered the recovery of alleged gains and interest, the people said.
Mauritius' Supreme Court appointed the managing director of business advisory and restructuring firm Quantuma as receiver in June to control and protect the fund's assets, the people said.
(With inputs from Reuters)
