US-based short-seller Hindenburg Research announced on Monday (July 1) that it had received a show cause notice from India’s capital markets regulator Securities and Exchange Board of India (SEBI) for short selling of Adani Enterprises Ltd (AEL) stock immediately before and after the release of its report last year accusing Adani of stock market fraud.

Hindenburg rejected SEBI’s notice as “nonsense”, and an attempt to silence and intimidate those who expose corruption and malpractices. SEBI is yet to issue a statement in response, and has not responded to requests seeking a reaction.

Here’s what to know about the controversy.

What is the Hindenburg Report on Adani?

On January 24, 2023 (January 25 in India) the New York-based investor research firm Hindenburg Research released a 106-page report accusing the Adani Group led by Gautam Adani of “brazen stock manipulation and accounting fraud scheme over the course of decades”.

The report was released ahead of the Rs 20,000-crore follow-on Public Offer (FPO) of Adani Enterprises Ltd, the flagship entity of the ports-to-energy conglomerate. Shares of Adani companies tanked (most have now recovered) after the release of the report, and the FPO, which was fully subscribed, was later called off by the Group.

Adani denied all allegations, and accused Hindenburg of leading a “calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India”.

Festive offer

What is SEBI’s show cause notice about?

Hindenburg said on July 1 that it had received, “on the morning of June 27”, a “bizarre email ostensibly from SEBI” that had initially appeared to be a “possible targeted phishing attempt”.

It said that it subsequently received another email, a 46-page show cause notice, which outlined suspected violations of Indian regulations. SEBI’s notice stated that Hindenburg appeared to have colluded with certain entities to use advance knowledge of non-public information to build short positions in AEL shares and book profits.

The notice, which Hindenburg posted on X, named Hindenburg Research, its founder Nathan Anderson, partner-investor Mark Kingdon, and three entities owned or controlled by Kingdon: Kingdon Capital Management LLC, M Kingdon Offshore Master Fund LP, and K India Opportunities Fund. (KIOF) – Class F.

SEBI has alleged that on November 30, 2022, the short seller shared a draft of its report on the Adani Group, which was substantially the same as the subsequently published Hindenburg Report, exclusively with its client, Kingdon Capital Management.

According to the show cause notice, Mark Kingdon held 99% stakeholding in Kingdon Capital, and was the ultimate beneficiary owner (UBO) of the M Kingdon Offshore Master Fund LP, which, on December 28, 2022, started the process of subscribing to 100 per cent Participating Redeemable (PR) shares of KIOF Class F, the Foreign Portfolio Investor (FPI).

The FPI then took short positions in the futures of AEL before the publication of the Hindenburg Report. It then squared off its entire short position after the report was published, making a profit of Rs 183.24 crore.

“Hindenburg colluded with Mark E Kingdon along with its three Kingdon entities, in a scheme devised to use advance knowledge of non-public information (NPI) regarding the existence, timing, and overall nature of the (Hindenburg) Report, to enable KIOF – Class F to build short positions in the futures of AEL and share profits accrued from squaring-off the positions at prices deflated due to publication of the Hindenburg Report in a manner designed to lower scrip prices to the maximum extent possible,” the show cause notice said.

How has Hindenburg responded to the show cause notice?

Hindenburg said the charges had been “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”.

It said: “Much of the show cause 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. Note that we are a US-based research firm with zero Indian entities, employees, consultants or operations.”

SEBI, Hindenburg said, claimed that the disclaimers in its report were misleading because we were “indirectly participating in the Indian securities market,” and, therefore, were short [on] Adani. “This wasn’t a mystery,” Hindenburg said — “virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it”.

Hindenburg said that instead of “meaningfully pursuing the parties that ran a secret offshore shell empire engaging in billions of dollars of undisclosed related party transactions through public companies” the regulator “seems more interested in pursuing those who expose such practices”. It alleged that SEBI may have “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”.

Where does Kotak come into this picture?

In his statement, Hindenburg said that SEBI’s notice had “conspicuously failed to name…Kotak Bank, one of India’s largest banks and brokerage firms…, which created and oversaw the offshore fund structure used by our investor partner. [Kingdon] to bet against Adani. Instead, it simply named the K-India Opportunities fund and masked the ‘Kotak’ name with the acronym ‘KMIL’”.

“We suspect SEBI’s lack of mention of [Uday] 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,” it said.

In response, Kotak Mahindra Bank said that KIOF is a SEBI-registered FPI that was established in 2013, and which follows due KYC procedures with regard to clients.

“Kotak Mahindra International Limited (KMIL) and KIOF unequivocally state that Hindenburg has never been a client of the firm nor has it ever been an investor in the Fund. The Fund was never aware that Hindenburg was a partner of any of its investors. KMIL 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,” a spokesperson for KMIL said.

As per corporate shareholdings filed for June 30, 2024 (available on, KIOF publicly held six stocks with a net worth of more than Rs 361.6 crore. By contrast, the assets under management (AUM) of Kotak Mahindra Mutual Fund as of March 2024 was Rs 3.81 lakh crore. The market capitalization of Kotak Mahindra Bank as on July 1, 2024 stood at Rs 3.59 lakh crore, and the bank announced a net profit of Rs 10,939 crore for the year ended March 2024.

How much profit did Hindenburg earn by short selling Adani stocks?

Hindenburg said: “We made ~ $4.1 million in gross revenue through gains related to Adani shorts from that investor relationship. We made just US ~ $31,000 through our own short of Adani US bonds held into the report. (It was a tiny position.).”

Net of legal and research expenses (including time, salaries/compensation, and costs for a two-year global investigation) “we may come out ahead of break even on our Adani short,” it said.

“There was never a point where the Adani thesis was financially justifiable for us. It was even less justifiable from a personal risk and safety perspective,” it said.