For Hindenburg Research, Adani Group is a man-made disaster in the making

The report said that the Adani Group had “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.

Gautam Adani, Adani Enterprises FPO
According to a note by Nuvama Wealth Management, the weighting of Adani Enterprises will decrease by 30 basis points to 0.5% in the MSCI Global Standard Index.

In 1937, a hydrogen-powered German airship flying into New Jersey caught fire and crashed, killing 35 passengers on board. It was sort of a man-made disaster as some 100 people were loaded on to a balloon filled with the most flammable material in the universe. The airship was named Hindenburg.

About Hindenburg’s inception

Eight decades later, in 2017, a graduate of international business management from the University of Connecticut founded a “forensic financial research” firm to specialise in spotting wrongdoings and frauds, or what it calls man-made disasters, at companies around the globe and take market bets against them. Founder Nathan (Nate) Anderson named his firm Hindenburg Research.

Adani Group on radar

Last week, a report from Hindenburg Research on Indian tycoon Gautam Adani’s business empire sparked a USD 51 billion sell-off in shares of his group companies, pushing him four places down on the world billionaire index.


The report said that the Adani Group had “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”. The disclosure came just ahead of Adani Enterprises Rs 20,000 crore open offer of shares to investors.

Adani group has since rubbished the report as a “malicious combination of selective misinformation and stale, baseless and discredited allegations”. That, however, hasn’t stopped investors from selling off.

On Friday, shares of Adani Group companies continued their losing streak for the second day with Adani Enterprises dropping a massive 18.5 per cent and Adani Ports & SEZ 16 per cent, taking the broader benchmark index — the Sensex down by 874.16 points or 1.45 per cent.

Also read: Adani Group stocks continue to fall; Adani Total Gas tanks nearly 20%

What does Hindenburg research do

Hindenburg engages in activist short selling, which involves selling borrowed stocks in hopes of buying at a lower price later. If prices fall expectedly, short sellers make a killing.

Hindenburg, which invests its own capital, takes such bets based on its research, which looks for “man-made disasters” such as accounting irregularities, mismanagement and undisclosed related-party transactions.

It especially looks for “accounting irregularities; bad actors in management or key service provider roles; undisclosed related-party transactions; illegal/unethical business or financial reporting practices; and undisclosed regulatory, product, or financial issues” in companies.

“While we use fundamental analysis to aid our investment decision-making, we believe the most impactful research results from uncovering hard-to-find information from atypical sources,” the company website says.

Hindenburg’s past targets include Lordstown Motors Corp (US), Kandi (China), Nikola Motor Company (US), Clover Health (US) and Tecnoglass (Colombia).

Also read: Hindenburg report: Congress seeks probe into charges against Adani

People behind the scene

Not much is known about the company, besides its 38-year-old founder Anderson, who lived in Jerusalem, Israel before returning to the US where he first took up a consulting job with a financial data company FactSet and then worked at broker dealer firms in Washington DC and New York.

Before he founded Hindenburg, Anderson worked with Harry Markopolos, who had flagged Bernie Madoffs Ponzi scheme, to investigate Platinum Partners, a hedge fund that was eventually charged with fraud worth USD 1 billion. While living in Jerusalem, Anderson volunteered for a local ambulance service.

Past targets

Hindenburg is best known for its bet against electric truck maker Nikola Corp in September 2020 for its “alleged lies and deceptions” in years leading up to its proposed partnership with General Motors.

Among dozens of other issues, it challenged a promotional video Nikola produced showing its electric truck cruising at high speed. This it said was nothing more than a truck being rolled down a hill in the Utah desert, a claim the company later admitted and its founder and executive chairman Trevor Milton resigning.

Nikola, which agreed in 2021 to pay USD 125 million to settle a case with the US Securities and Exchange Commission, listed in June 2020 and its valuation touched USD 34 billion at peak but is now worth USD 1.34 billion.

Hindenburg’s website lists over a dozen companies where it has flagged alleged wrongdoings. These include WINS Finance, which Hindenburg revealed had failed to disclose to US investors an RMB 350 million asset freeze imposed on one of its subsidiaries in China; the “zombie company” China Metal Resources Utilization which had a “100 per cent downside” and was “under severe financial distress” with “numerous accounting irregularities”; SC Worxs “completely bogus” Covid-19 testing deal; “massive undisclosed related party transactions, including a USD 509 million merger” at HF Foods; “billions of dollars in undisclosed off-balance sheet liabilities” of Bloom Energy; and a whistleblower report to the United States Securities and Exchange Commission (SEC) “relating to RD Legal, a hedge fund that was later charged by the commission for allegedly making material misstatements to its investors”.

Almost all of Hindenburg’s work has been followed up by legal or regulatory action, according to its website.

Also read: Amid Hindenburg allegations, InGovern bats for Adani Group

Activist short-selling

To take a short position, investors sell borrowed stock in hopes of buying it back at a lower price later. If prices fall expectedly, they make a killing. If the price rises instead, they would have to buy stock to cover what they borrowed.

Short sellers, however, aren’t admired by most. Companies targeted by the activists have been pushing regulators to go after these short sellers as they may be indulging in some sort of insider trading. Supporters, however, say that the research actually uncover frauds and do more good than harm to investors.

(With Agency inputs)