India's securities regulator has begun personal hearings as it pursues profits from short-selling trades it believes were executed with prior access to Hindenburg Research's controversial report on the Adani Group, people familiar with the matter said.
The regulator, the Securities and Exchange Board of India (SEBI), has previously found that U.S.-based Kingdon Capital Management had established short positions in Adani-related securities via a Mauritius-based vehicle linked to Kotak International prior to the public release of Hindenburg's report. Short positions involve selling borrowed shares and later repurchasing them at a lower price to capture the difference.
Hindenburg's 2023 report asserted that the Adani Group had violated securities laws, a claim that prompted a selloff in related stocks and a significant decline in their market value, wiping out about $150 billion in group market capitalization. The Adani Group has denied allegations of wrongdoing. SEBI has, in turn, dismissed Hindenburg's claims of stock manipulation against the group.
In 2024, SEBI disclosed that Hindenburg and Kingdon had a profit-sharing arrangement and said six entities profited a total of $22.25 million from the short-selling trades. Officials and parties involved did not provide comment when contacted; SEBI, Hindenburg, Kingdon and Kotak did not respond to emails seeking comment, according to the people familiar with the case. Hindenburg has previously rejected wrongdoing and characterized SEBI's assertions as "nonsense," the people said.
The regulator has opened personal hearings more than two years after the report's publication, with officials citing the time taken for parties to reply as a factor in the delay. Though the entities implicated are based overseas, SEBI contends it has jurisdiction because the underlying trades occurred in India. One of the people said SEBI is continuing enforcement actions on the basis that the trades were executed using non-public information and therefore breached anti-fraud provisions.
To preserve assets it hopes to recover, SEBI has opposed a court-supervised insolvency process in Mauritius for the Kotak-linked fund used to carry out the trades - identified as K India Opportunities Fund Class F - the people said. SEBI argues that proceeds from the trades were routed into that fund. Reuters could not determine whether the fund distributions, if any, were withdrawn or redeemed by Kingdon as the beneficiary of the fund.
Upon learning that an insolvency proceeding had been initiated, SEBI asked the court-appointed receiver in the first week of July to prevent any transfers or distributions of fund assets until SEBI had the opportunity to pursue recovery of the alleged gains plus interest, the people said.
Mauritius' Supreme Court appointed the managing director of the business advisory and restructuring firm Quantuma as the receiver in June to take control of and safeguard assets of the fund, according to the people with knowledge of the process. Quantuma declined to comment.
The case is viewed by observers as a potential precedent in efforts to reach offshore structures and recover assets located overseas. It has involved unusual steps, including a bid to halt a foreign insolvency proceeding to enable regulatory recovery and enforcement measures.
The regulator's actions underscore the cross-border complexity of enforcement when trades tied to domestic markets are executed through foreign vehicles and international beneficiaries. SEBI's pursuit includes both administrative hearings and legal interventions in overseas courts to secure the pool of assets linked to the contested trades.