The response was – after the sale of Adani’s shares – to publish a report under the not-so-subtle title “Adani Group: How the World’s 3rd Richest Man Perpetrated the Biggest Fraud in Corporate History”.
Ethics, law and manipulation
However, the 132-page Hindenburg Report is a critique of corporate ethics, law enforcement and stock market manipulation in India. If Adani is representative of Indian business, it is an attack on India’s corporate culture.
From an Indian perspective, it was timed as one: the day before the annual celebration of independence from Britain and as Adani prepared what it said would be the biggest share sale in India’s history.
If the Americans are to be believed, the laws governing India’s seven stock exchanges are laxly enforced. They accused the conglomerate of using corporate shells to engage in stock parking, stock manipulation and money laundering.
Money is transferred to and from private companies on the balance sheets of listed companies to appear financially sound, according to Hindenburg. The firm claims that large amounts of Adani shares are held in shell companies based in Mauritius and elsewhere. Their owners hide behind nominated directors.
Indian securities law requires the disclosure of insider shareholders, in this case the Adani family. Hindenburg alleges that an investment fund that owns almost $US3 billion ($4.2 billion) of Adani shares is secretly controlled by the Adani Group.
“Leaked emails show that Elara’s CEO worked on deals with Dharmesh Doshi, a fugitive accountant who worked closely on stock manipulation deals with Ketan Parekh, an infamous Indian market manipulator,” the Hindenburg report said . “The emails show that the Elara executive worked with Doshi on stock deals after he evaded arrest and was widely known as a fugitive.
India has an infamous stock market manipulator whose partner is delusional and still operating the markets? Sounds colorful.
Letter to the Stock Exchange
At 413 pages, Adani’s response is almost four times longer than the allegations against him. (The Adani Group has seven core businesses: ports, power, power transmission, renewable energy, gas, consumer products and miscellaneous ventures.)
To refute allegations of market manipulation, Adani republished a letter it sent to the Bombay Stock Exchange and the National Stock Exchange of India after media reports said regulators were investigating funds that held Adani shares.
“We regret to mention that these reports are clearly wrong and are being made to mislead the investment community,” Adani said.
The company seems to believe that clears things up.
To an outsider, the more you read the two documents, the more you question the judgment of both sides.
“Lots of Discussion”
Take this from Hindenburg on the internal politics of an alleged stock manipulation operation: “As part of our investigation, we interviewed an individual who was banned from trading in Indian stock manipulation markets through Mauritius-based funds. He told us that he knows Ketan Parekh personally and that little has changed, explaining that “all the previous clients are still loyal to Ketan and still work with Ketan.”
Or this explanation from Adani on how it has used financial contracts to hedge against any macroeconomic fluctuations this year: “After understanding the different risks across the different value chains with multiple discussions, the group implemented various instruments and tools to mitigate those risks .”
Maybe one day some absolute truth about the Adani group will be established and we can say, “those Hindenburg boys must be geniuses when they chose the collapse of Adani” or “those Hindenburg boys gave themselves a bad name for short selling with this far-fetched attack on Adani”.
It’s more likely that the main characters will struggle and the rest of us will be left unsure.
Either way, Adani’s charges are a reminder that public markets are built on the assumption that companies, especially the nation’s top ones, don’t routinely engage in gigantic frauds.
But who would know?