US short-seller Hindenburg Research, whose report critical of the Adani Group led to a massive stock rout last year, had shared an advanced copy with a client two months before publishing it, said the Indian markets regulator. This "collusion" led to "unfair" profits from a deal to share spoils from stock price movements, the Security Exchange Board of India (SEBI) said in a 46-page show cause notice to Hindenburg.

The notice details how New York-based hedge fund manager Mark Kingdon and a broker tied to Kotak Mahindra Bank profited from the $150 billion rout in the market value of 10 listed firms of Adani Group after the report was published.

The report used "non-public" and "misleading" information to induce "panic selling" in Adani Group stocks, SEBI charged.

In response, Hindenburg described the show-cause notice as an attempt to "silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India."

It also said that the vehicle used to bet against Adani Enterprises belonged to Kotak Mahindra (International) Ltd (KMIL), a Mauritius-based subsidiary of Kotak Mahindra Bank Ltd. A fund of this subsidiary placed bets on Adani Enterprises for its client, Kingdon's Kingdon Capital Management.

Besides Hindenburg, SEBI has issued notices to KMIL, Kingdon and Hindenburg founder Nathan Anderson as well.

Time-stamped chats between a Kingdon employee and KMIL traders for selling future contracts in Adani Enterprises are part of the show-cause notice.

Kotak Mahindra Bank said Kingdon neither disclosed their relationship with Hindenburg nor "that they were acting on the basis of any price-sensitive information."

The Supreme Court and SEBI had earlier given clean chits to the Adani Group in the case.

Senior lawyer Mahesh Jethmalani had earlier claimed that Kingdon had a Chinese link - the hedge fund manager is married a "Chinese spy" Anla Cheng, he claimed. He alleged that the couple hired Hindenburg for the research report on Adani and engaged Kotak's services to make a trading account to short-sell Adani shares, and made millions from the stock rout.

SEBI further alleged Kingdon had a deal to share with Hindenburg 30% of the profits made from trading on the basis of the report. It was, however, reduced to 25% due to the extra time and effort needed to reroute the trades via KMIL's K-India Opportunities Fund Ltd fund. Kingdon had a controlling stake in the K-India fund.

Kingdon transferred $43 million in two phases to build short positions for 8.5 lakh shares of Adani Enterprises before the report against Adani Group was published. Hindenburg published it during the pre-market hours on January 24, 2023.

"Prior to the release of the Hindenburg Report, concentration in short-selling activity was observed in the derivatives of Adani Enterprises Ltd," the SEBI said. After the report was published, the Adani Enterprises share prices fell by around 59% between January 24 and February 22, 2023, it said.

The K-India fund, which had opened a trading account just ahead of the report's publication, squared off its entire short position and made profits of around $22.25 million (Rs 183.23 crore). "The net profit after trading and legal expenses comes to USD 22.11 million," SEBI said.

Kingdon, who owed $5.5 million to Hindenburg as part of the deal, paid $4.1 million by June 1, the notice said.

Responding to the notice, Kingdon Capital said it had legal option to "enter into a research services agreement with a third-party firm that publicly releases short reports on companies, pursuant to which Kingdon Capital would be given a draft copy of the report before it is made publicly available and would have the opportunity to accordingly made investments before the report's public dissemination."

Hindenburg said it had made $4.1 million from its declared positions on Adani stocks.

(Disclaimer: New Delhi Television is a subsidiary of AMG Media Networks Limited, an Adani Group Company.)