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What Hindenburg said about Kotak Bank after SEBI show cause notice over Adani Group report

The firm said it was 'an attempt to silence... those who expose corruption...'

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Hindenburg Research, a US short seller that had accused the Adani Group of stock market manipulation and accounting fraud, said on Tuesday that it SEBI sent it an email on June 27 and later a show cause notice over suspected violations of Indian regulations by allegedly placing bets on the company's stocks.

Calling the show cause notice "nonsense", the New York firm said it was "an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India."

Hindenburg said it had disclosed that it was short on Adani, which means it had traded on the stock after expecting a plunge in its value.

"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 works 'hand in glove' with conglomerates like Adani to help it skirt regulations," it alleged.

"Did Hindenburg work with dozens of firms to short Adani, making hundreds of millions of dollars? No - We had one investor partner, and net of costs we may barely come out above breakeven on our Adani short... Our work on Adani was never justifiable from a financial or personal safety perspective, but it is by far the work we are most proud of,” it added.

Slamming the conglomerate, the short seller said, "To this day, Adani has still failed to address the allegations in our report, instead providing a response that ignored every key issue we raised and has offered blanket denials of subsequent media allegations."

In its January 2023 report, Hindenburg said it had "provided evidence of a vast network of offshore shell entities controlled by (group chairman) Gautam Adani's brother, Vinod Adani, and close associates. “We detailed how billions were surreptitiously moved through these entities, into and out of Adani public and private entities, often without related-party disclosures," it added.

Slamming SEBI, the short seller stated, "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. Note that we are a US-based research firm with zero Indian entities, employees, consultants or operations."

SEBI, in the notice, said the disclaimers in the report were misleading because Hindenburg was "indirectly participating in the Indian securities market.” However, the US firm said “this wasn't a mystery, virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it.”

What did Hindenburg say about Kotak Bank?

The short seller revealed that an offshore fund structure created and overseen by Kotak Bank was used by its "investor partner" to be against the conglomerate but hastened to add that it may "barely come out above breakeven" on its trade. However, it did not disclose the name of the investor. Hindenburg said it made $4.1 million in gross revenue through "gains related to Adani shorts from that investor relationship" and just $31,000 through its short position of Adani Group's US bonds.

Claiming that SEBI notice did not "conspicuously" name Kotak Bank with which Hindenburg has ties with, Hindenburg 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.”