The Securities and Exchange Board of India (SEBI) has issued a show cause notice to US-based short seller Hindenburg Research for "unfairly" profiting from its critical report on Adani Group by sharing it with a client two months before publication.
In its 46-page notice, the regulator detailed how New York-based hedge fund manager Mark Kingon and a broker linked to Kotak Mahindra Bank profited from a $150 billion drop in the market value of the Indian conglomerate's 10 listed companies after the report was published.
The notice also includes chats between a Kingdon employee and KMIL traders to sell future contracts in Adani Enterprises.
The Indian regulator has also alleged that the New York-based hedge fund manager had an agreement with Hindenburg to share 30 per cent of the profits made from trading on the basis of the report.
The percentage was later reduced to 25 per cent as extra time and effort was put into routing the trade through KMIL's K-India Opportunities Fund Ltd, in which Kingdon had a controlling interest.
The K-India Opportunities Fund Ltd. had opened a trading account just before the report was published and made a profit of about $22.25 million.
The regulator said the net profit after trading and legal costs was about $22.11 million.
According to the notice, $43 million was transferred by Kingdon in two phases to build short positions in 850,000 lakh shares of Adani Enterprises before the report was published.
"Prior to the release of the Hindenburg Report, concentration in short-selling activity was observed in the derivatives of Adani Enterprises Ltd," the SEBI said while adding that after the report was published, the Adani Enterprises share prices fell by around 59 per cent between January 24 and February 22, 2023.
The notice also mentioned that Kingdon had paid $4.1 million to Hindenburg by 1 June as part of the $5.5 million deal.
In response to SEBI's show cause notice, Hindenburg Research said it was an attempt to "silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India".