An emboldened Hindenburg’s profit score has gotten better as it targets bigger guns

Bengaluru: At 5.34 am on Saturday, 10 August, India time, American short-seller Hindenburg Research put up a cryptic post on X: “Something big soon, India.”

It immediately sparked curiosity and speculation among investors, analysts and the media. Whom was the New York-headquartered short-seller targeting now?

When Hindenburg issued a note on the Adani Group in January last year, it had set off a firestorm in India’s capital markets, prompting a $50 billion meltdown in Adani Group’s valuations.

The group has strongly denied Hindenburg’s allegations of an accounting fraud and manipulation of shares. Over the last 18 months, the 10 listed Adani Group companies have clawed back most of the losses in valuations since the short-seller’s report.

At 9:57 pm on Saturday, Hindenburg ended the suspense with its latest note, this time targeting Madhabi Puri Buch, chairperson of the country’s capital markets regulator, the Securities and Exchange Board of India.

“Whistleblower Documents Reveal SEBI’s Chairperson Had Stake In Obscure Offshore Entities Used In Adani Money Siphoning Scandal,” was the title of a 12-page note posted by the short-seller on its website.

Sebi had issued a show cause notice to Hindenburg in June stating that the short seller had violated Indian regulations, including inadequate disclosures on how it traded and profited.

Hindenburg’s Saturday retort raised questions of impropriety by Buch, alleging that her ownership of a firm, Agora Advisory, posed a potential conflict of interest. It also alleged that Blackstone Group, a global asset management company in which the Sebi chief’s husband, Dhaval Buch, is an adviser, benefitted from regulatory changes related to Indian real estate investment trusts.

Agora Advisory is a private firm headquartered in Mumbai that offers consulting services, although Mint could not independently gather details about it.

Buch and her husband, Dhaval, issued a statement at 1:43 am Sunday denying the allegations.

Also read | Mint Explainer: Why Sebi and Indian real estate investment trusts are in Hindenburg’s crossfire

“In the context of allegations made in the Hindenburg Report dated August 10, 2024 against us, we would like to state that we strongly deny the baseless allegations and insinuations made in the report,” they said in a joint statement.

“All disclosures as required have already been furnished to SEBI over the years. We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them. It is unfortunate that Hindenburg Research against whom SEBI has taken an Enforcement action and issued a show cause notice has chosen to attempt character assassination in response to the same.”

An 81% strike rate

Since Nathan Anderson started Hindenburg as a standalone research firm in December 2017, the short seller has published reports on 63 companies, according to an executive and a review of the reports by Mint.

Hindenburg has also flagged problems at Nanban Ventures LLC, a Dallas, Texas-headquartered venture capital firm, and alleged malpractices at another American firm, J&J Group (not to be confused with pharma giant Johnson and Johnson), and issued four follow-up reports.

The latest salvo on Sebi and Buch adds up to a total of 70 reports, including the follow-up notes, over 81 months—almost one note every month.

Three of the 63 listed companies on which Hindenburg has issued reports have since filed for bankruptcy—software firm Ebix Inc., electric vehicle maker Lordstown Motors, and Sorrento Pharmaceuticals.

Firms like Hindenburg typically share their research with a small pool of investors before the public release, allowing them to take short positions and profit once the report is released. Such firms make a commission off the profits their investor partners make.

When Mint analysed the performance of 45 investment calls by Hindenburg in January last year, the paper found that three-quarters of those, or in 34 of the instances, investors of the short seller had profited.

Also read | For Adani group, SC verdict brings curtains down on a turbulent year

Since its report on Adani Group in January last year, Hindenburg’s record in making a profit off its report has improved.

Only 12 of the 63 listed companies targeted by Hindenburg were trading at a higher price as of 10 August. This implies that Hindenburg got it right in 51 of the 63 companies—a strike rate of about 81%.

“A success rate of 81% is remarkable,” said an investor who works with a New York-based hedge fund. “Speak to any short seller and you’ll realise that they struggle to get even a third of their calls right.”

Carl Icahn, Jack Dorsey in the crosshairs

After its explosive report on the Adani Group in January 2023, Hindenburg appears to be targeting more high-profile businesses.

Take, for example, its report on Block Inc., the payments group owned by Twitter co-founder Jack Dorsey. In March last year, Hindenburg alleged that Block had artificially inflated its user numbers and facilitated fraudulent transactions.

Block denied the allegations, but its share price has been down by 15% since Hindenburg issued its note.

In May last year, Hindenburg targeted a firm owned by Wall Street’s best-known activist investor, Carl Icahn. Hindenburg claimed Icahn Enterprises, a conglomerate owning a car parts business and a portfolio of hedge fund-style investments, was overvalued and holding assets at an inflated value on its balance sheet.

Icahn dismissed the report. But since the Hindenburg report, shares of the Nasdaq-listed Icahn Enterprises are down 68%.

Hindenburg vs Sebi

Hindenburg’s latest onslaught on Sebi chairperson Buch is the first instance of the short seller questioning an individual, and a markets regulator at that.

“The latest note by Hindenburg should be read more as a follow-up on their note on Adani last year,” said a Delhi-based executive who manages wealth for a billionaire business group. “It is like Hindenburg is telling the world that look, our research on Adani was correct and if only the regulator would have done an impartial probe, the truth would have come out.”

But at least one executive questioned Hindenburg’s latest salvo.

Also read | At Sebi, Madhabi Buch doesn't look at ICICI Securities, Blackstone matters

“Just because Sebi did not act the way Hindenburg expected it to is no reason to get personal. This appears to be in poor taste and completely uncalled for,” said Amit Tandon, founder and managing director at proxy advisory firm Institutional Investor Advisory Services India.

“It would appear that investors would be less shocked now compared to their (Hindenburg) last note on Adani,” said the Delhi-based executive.

Hindenburg did not immediately reply to an email seeking comment.

Also read | Mint Explainer: Hindenburg's latest salvo against Sebi and Adani—and Kotak