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Top Research Firm Puts Out Short Seller Fatwa Against Adani Group, Alleges Largest Corporate Fraud In History

Top Research Firm Puts Out Short Seller Fatwa Against Adani Group, Alleges Largest Corporate Fraud In History

Adani

Adani Group Chairman Gautam Adani attends Invest Karnataka 2016 Global Investors Meet in Bangalore, India, Feb. 3, 2016. (AP/Aijaz Rahi)

A sell-off of Adani Group stocks linked to Indian billionaire Gautam Adani has wiped out $47 billion in market value Friday after U.S. short-seller Hindenburg Research published a report alleging massive fraud at the company and announced its short position in the firm.

Hindenburg detailed multiple allegations against the conglomerate’s companies, saying the group has “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

The report, dated Jan. 24, was titled “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History”.

Five of the seven listed Adani Group company stocks were down 16-to-20 percent, and the other two fell by the maximum 5 percent permitted by India’s stock exchanges, Wall Street Journal reported. Combined, the seven Adani companies had a total market capitalization of about $217 billion earlier this week, according to FactSet. They have lost the equivalent of $47 billion in market value since the Hindenburg report was published.

Named after the disaster of the Hindenburg airship which killed 35 people when it went down in flames in 1937 over New Jersey, Hindenburg said on its website it looks for “man-made disasters.” These include accounting irregularities, mismanagement and undisclosed transactions.

Short selling is an investment or trading strategy that speculates on the decline in the price of a stock or other security. Hindenburg invests its own capital, Reuters reported.

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After finding potential wrongdoings, Hindenburg usually publishes a report explaining the case and bets against the target company, hoping to make a profit.

Adani rejected the Hindenburg claims, saying in a press release the short seller was making an “intentional and reckless attempt by a foreign entity to mislead the investor community and the general public. We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research.”

Hindenburg responded that any lawsuits filed against it will be “meritless.”

Some market participants blamed Friday’s selloff partly on another short seller — high-profile U.S. hedge-fund manager Bill Ackman, who tweeted in support of Hindenburg. Ackman said he doesn’t have a position in any Adani companies and found the Hindenburg report “highly credible and extremely well researched.”

Adani has controlled its own narrative and has long been seen as untouchable despite previous fraud allegations. said Brian Freitas, founder of the research firm Periscope Analytics. “That’s kind of broken now,” Freitas said.

Ackman’s tweet may have spooked investors who read the Hindenburg report and were waiting to see if the Adani Group answer to some of the fraud allegations.

Hindenburg has published reports on potential wrongdoing in at least 16 companies since the company was founded in 2017, according to its website. The short seller is best known for its 2020 bet against electric truck maker Nikola, which resulted in “a big win,” Hindenburg founder Nathan Anderson told the Wall Street Journal.

Nikola was valued at $34 billion shortly after being listed in June 2020. It’s now worth $1.34 billion, Reuters reported. 

Hindenberg founder Anderson graduated from the University of Connecticut with a degree in international business and worked in finance at data company FactSet Research Systems Inc. His earlier jobs include a stint as an ambulance driver in Israel.

In May 2020, Hindenberg took a short position in Twitter and then took a long position in July. Hindenburg said it was short because it believed that Elon Musk’s $44-billion offer to take the company private could get repriced lower if Musk walked away from the deal. In July, it took a “significant long position,” betting against Musk. The Twitter deal closed in October at the original price.

Hindenburg Research tweeted that Adani’s accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls. It also tweeted that sustained turnover in the CFO role — five in eight years — indicate potential accounting irregularities.

“People don’t really know this, but we’ve quietly blown up over a half dozen Ponzi schemes,” Anderson said in a 2020 Barrons interview. “We want to put bad guys in jail. We want to catalyze legislation that makes markets more transparent and effective.”