Sebi Begins Hearings in Hindenburg-Linked Adani Short-Selling Case

The Securities and Exchange Board of India (Sebi) has begun personal hearings in its investigation into trades linked to Hindenburg Research's 2023 report on the Adani Group, as the market regulator seeks to recover gains from transactions it believes may have been based on non-public information.

The hearings have started more than two years after the trades were carried out. According to a Reuters report, the parties involved are based overseas, but Sebi believes it has jurisdiction over the matter because the transactions were executed in the Indian market.

Sebi is examining whether traders had access to information about the Hindenburg report before its publication and used that information to build short positions in Adani-related stocks. Trading based on material non-public information could violate regulations designed to prevent fraudulent and unfair market practices.

In its findings in 2024, Sebi said US-based Kingdon Capital Management had built short positions in Adani-linked stocks before Hindenburg Research released its report in January 2023. The transactions were carried out through K India Opportunities Fund Class F, a Mauritius-based fund linked to Kotak International.

Short selling involves selling borrowed securities with the expectation that their price will fall, allowing traders to buy them back later at a lower price and profit from the difference.

Hindenburg's report triggered a major sell-off in shares of companies associated with the Adani Group after raising allegations of violations of securities laws. The Adani Group denied the allegations. Sebi subsequently dismissed Hindenburg's allegations of stock manipulation against the group.

The market regulator had also highlighted a profit-sharing arrangement involving Hindenburg and Kingdon. Sebi said six entities collectively made gains of around $22.25 million through the short-selling trades. Hindenburg has previously denied any wrongdoing.

The matter has now taken another dimension following insolvency proceedings involving K India Opportunities Fund Class F in Mauritius. Sebi has opposed the court-supervised proceedings, seeking to ensure that the fund's assets remain available for any potential recovery of alleged gains and interest.

The regulator reportedly approached the court-appointed receiver in early July, requesting that the assets of the fund not be transferred or distributed before Sebi completes its enforcement process and determines whether any recovery is required.

Mauritius' Supreme Court appointed a receiver for the fund in June to take control of and safeguard its assets. The proceeds from the disputed trades were reportedly held through the fund, although it remains unclear whether the gains were subsequently distributed or redeemed by Kingdon, which was the fund's beneficiary.

The case is being closely watched as it tests Sebi's ability to pursue enforcement action involving overseas entities and potentially recover assets held outside India. The proceedings also highlight the regulator's efforts to prevent disputed funds from being transferred during parallel insolvency proceedings in another jurisdiction.