India's SEBI Advances Case Against Hindenburg, Others Over Adani Short-Selling, Sources Say

India's market regulator is moving forward with enforcement proceedings against Hindenburg Research, Kingdon Capital Management, and other entities, according to sources familiar with the matter. The Securities and Exchange Board of India (SEBI) has begun personal hearings in a case alleging the firms profited from prior knowledge of Hindenburg's critical 2023 report on the Adani Group.

Regulatory Action Intensifies

SEBI is proceeding with its enforcement action on the grounds that certain trades were based on non-public information, thereby violating regulations designed to prevent market fraud, one source said. The regulator alleges that several entities established significant short positions in Adani-related stocks just before Hindenburg published its report, which led to a sharp decline in share prices.

According to SEBI's findings detailed in 2024:

• Six entities allegedly gained a total of $22.25 million from these short-selling trades.
• U.S.-based Kingdon Capital Management is accused of building short positions through a Mauritius-based fund, K India Opportunities Fund Class F, which is linked to Kotak International.
• The regulator also detailed a profit-sharing agreement between Hindenburg and Kingdon.

A Cross-Border Precedent

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This case is widely viewed as a significant test of SEBI's jurisdiction and ability to recover assets from overseas entities. To secure the alleged gains for potential recovery, SEBI has taken the rare step of intervening in foreign insolvency proceedings.

The regulator is opposing court-supervised insolvency proceedings in Mauritius for the Kotak-linked fund used to execute the trades. According to the sources, SEBI has asked the court-appointed receiver in Mauritius to ensure the fund's assets are not transferred or distributed before it concludes its recovery action.

Background of the Adani-Hindenburg Case

The original report from U.S. short-seller Hindenburg Research in 2023 accused the Adani Group of securities law violations and stock manipulation. The report triggered a massive selloff that wiped out approximately $150 billion from the conglomerate's market value. Adani Group has consistently denied any wrongdoing.

While SEBI ultimately dismissed Hindenburg's core allegations of stock manipulation against Adani Group, it is pursuing this separate case focused on the trading activity preceding the report's release. Hindenburg has previously denied SEBI's assertions regarding its trades, calling them "nonsense." According to Reuters, SEBI, Hindenburg, Kingdon, and Kotak did not respond to recent requests for comment.