Key Takeaways
- India’s markets regulator, SEBI, is hearing representations to recover gains from trades suspected of benefiting from prior knowledge of Hindenburg’s report.
- SEBI alleges Kingdon Capital Management built short positions in Adani-related stocks before Hindenburg’s report, resulting in $22.25 million in gains.
- The case involves offshore entities and is seen as setting a precedent for pursuing assets overseas.
India’s markets regulator, the Securities and Exchange Board of India (SEBI), has initiated hearings to recover gains from trades it suspects were based on prior knowledge of a scathing report by Hindenburg Research, according to sources.
SEBI claims that U.S.-based Kingdon Capital Management built short positions in Adani-related stocks through a Mauritius-based fund linked to Kotak International before Hindenburg published its report in 2023, leading to a significant drop in share prices and a loss of $150 billion in group value.
Adani Group has denied any wrongdoing, while Hindenburg previously denied any allegations of stock manipulation and described SEBI’s assertions as ‘nonsense’.
The case is seen as setting a precedent for the pursuit of offshore entities and the recovery of assets overseas, involving the rare attempt to seek a stay in a foreign insolvency proceeding to enforce penal action.
SEBI is proceeding with enforcement, arguing that the trades were based on non-public information and violated rules aimed at preventing fraud.
To secure assets for recovery, SEBI has opposed court-supervised insolvency proceedings in Mauritius for the Kotak fund – K India Opportunities Fund Class F – used to execute the trades.
The regulator has started personal hearings more than two years later, as the parties involved took time to respond, according to sources.
Mauritius’ Supreme Court appointed the managing director of business advisory and restructuring firm Quantuma as receiver in June to control and protect the fund’s assets.
SEBI asked the court-appointed receiver in the first week of July to ensure fund assets were not transferred or distributed before it had ordered the recovery of alleged gains and interest.
