One of the world's leading investor research companies, Hindenburg Research, has revealed that it received a show cause notice from the Indian market regulator Securities and Exchange Board of India (SEBI) last year regarding its trading activity in shares of a major Indian business group prior to releasing a critical report on the company.
In its response, Hindenburg questioned the intentions behind the notice, suggesting it was aimed at intimidating those who expose potential wrongdoings by powerful corporations. The firm believes discussions with local sources that SEBI quickly assisted the business group after Hindenburg's report was published.
The report in question, released in January 2023, raised allegations of stock manipulation and inaccurate accounting against a prominent port-to-energy conglomerate. It came just before the group planned a large public share offering.
SEBI's notice apparently focused on the pre- and post-report trading of one foreign investor that took a short position in the company's shares through an offshore fund. Hindenburg claims this fund has ties to a major Indian bank. However, the notice curiously did not specify the bank by name.
Hindenburg maintains it followed standard practices by having a single investor relationship for its research on the company. While generating some revenue from the short trade, the firm says its costs exceeded profits after a two-year global investigation.
The notice and SEBI's actions have led Hindenburg to question whether the regulator is more interested in targeting those exposing possible malpractices instead of thoroughly investigating the parties involved. It draws parallels to actions against journalists and politicians critical of the business group.
Neither SEBI nor the bank supposedly connected to the fund have responded to Hindenburg's claims. The business group also did not comment. The matter has reignited debate around independence of regulatory oversight and treatment of whistleblowers in the country's financial system.