Hindenburg Hit And Run: Nate Anderson's Second Attempt A Damp Squib

US-based research firm Hindenburg’s second attempt to hit and run has been met with strong pushback. It doesn’t seem the shortseller has anything new to say and so it attempts to target Indian institutions.

The second hit seems an attempt by Hindenburg to somehow wriggle out of the enforcement action initiated by the Indian market regulator, Securities and Exchange Board of India, with the assistance of the US Securities and Exchange Commission.

Hindenburg’s latest story is also an attempt to undermine the investigation by the regulator, SEBI, and the Supreme Court of India judgement which settled the matter in January earlier this year.

The research firm failed in what it needs to be doing — basic research to begin with. An appointment of a regulator in India precedes a thorough investigation of the shortlisted individuals which includes reports by several investigation agencies to the Appointments Committee of the Cabinet. It also lacks the understanding of the code of conduct any regulator is scrutinised and subjected to including conflict of interest and recusal norms applicable not just to the head of the institution but also to all officers of the institution.

SEBI is considered to be technologically more advanced and better governed that most developed market regulators. India is no longer a market where any entity can come and disturb the equilibrium and profiteer. Further Indian regulators seldom respond to strict criticism but any attack on their integrity needs defending, especially if it is a deliberate attempt of character assassination.

The report is another attempt to short the Indian market, as disclosed by Hindenburg Research in its disclaimer. Unfortunately, for it to profit from the shorts it needs the domestic markets to fall and the report over the weekend seem to be failed attempt which the market will mostly ignore.

Madhabi Puri-Buch was a successful banker in India before she shifted to Singapore for personal reasons. As part of private life and personal finance management any individual has the right to invest in funds and securities. Hindenburg reveals the investment but doesn’t reveal that 90% of the investment of the fund was in bonds and never in any instrument of the Adani Group company. Buch has also stated that their investment was primarily into the fund of their family friend, Anil Ahuja who was CIO of the fund and was redeemed soon after Ahuja left the fund.

The market regulator also confirmed in a statement that it has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal.

Sebi confirmed that relevant disclosures required in terms of holdings of securities and their transfers have been made by Madhabi Puri-Buch from time to time. Buch has also recused herself in matters involving potential conflicts of interest, it added.

SEBI had informed the Supreme Court that it has completed twenty–two out of twenty–four investigations into the Adani group. The regulator said, subsequently, one more investigation was completed in March 2024, and one remaining investigation is close to completion.

As part of the ongoing investigation, more than 100 summons, around 1,100 letters and emails have been issued to seek information. Further, more than 100 communications have been made seeking assistance from domestic and foreign regulators and external agencies. It has also examined over 300 documents containing around 12,000 pages.

The regulator noted that it pursues enforcement proceedings, which are quasi-judicial in nature, after completion of the investigation. This comprises issuing of show cause notice and giving of opportunity of hearing which culminates in the passing of a speaking order. Such order is then made available in the public domain.

Regulators refrain from commenting where investigations have been completed, enforcement proceedings initiated are ongoing and appropriate actions are being taken in accordance with the applicable securities laws.

The report is claimed to be backed by whistle-blower documents. A whistle-blower as claimed by Hindenburg would have provided all information, it seems Hindenburg used selective information to suit its need and create narrative to short the market.

The US research firm continues to claim that SEBI is not moving in its investigation, but did not give the reason why it has not responded to regulators show cause notice.

So, Hindenburg should start with its disclosure – aside of how much short position it holds in overseas India ETF, who did they share the draft report with before it was published on Saturday and what is the revenue share this time.

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