US-based short seller Hindenburg Research has stated that it received a "show cause" notice from the Securities and Exchange Board of India (Sebi) on 27 June, "outlining suspected violations of Indian regulations." The firm also claimed that the regulator assisted Adani Group after the release of its report in January 2023.

Hindenburg Research, which had accused the Adani Group of improper use of tax havens and raised concerns about debt levels in a 2023 report, described SEBI's notice as 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," it said in a blog post on Tuesday.

"Following our report, we were 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 at a critical time."

“After 1.5 years of investigation, SEBI identified zero factual inaccuracies with our Adani research. Instead, the regulator took issue with things like- Our use of the word “scandal” when describing multiple prior instances of Adani promoters being charged with fraud by Indian regulators and our quoting of an individual that alleged SEBI is corrupt and work ‘hand in glove’ with conglomerates like Adani to help it skirt regulations.”

In the 46-page notice, which Hindenburg attached with the post, Sebi said that the report released in January last year "contained certain misrepresentations/inaccurate statements" meant to "mislead readers".

“In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it,” the firm said.

Furthermore, Hindenburg Research stated that while SEBI seemingly tied itself in knots to claim jurisdiction over the firm, it "conspicuously failed to name" Kotak Bank, which it added was the party with an actual tie to India.

“While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani,” the group said. "Instead it simply named the K-India Opportunities fund and masked the “Kotak” name with the acronym “KMIL”.

It added, “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.”

SEBI had been investigating the Adani Group, led by billionaire Gautam Adani, after Hindenburg Research alleged in January 2023 that the group engaged in improper use of tax havens and stock manipulation.

In January this year, the Supreme Court ruled that the Adani Group did not need to face further investigations beyond the current scrutiny by the market regulator.

Image source: Bloomberg