Hindenburg neither a client nor an investor: Kotak Mahindra Group after short seller alleges role in betting against Adani

"KMIL and KIOF unequivocally state that Hindenburg has never been a client of the firm, nor has it ever been an investor in the Fund. The Fund was never aware that Hindenburg was a partner of any of its investors," said a spokesperson for KMIL on July 2.

KMIL has also received a confirmation and declaration from the Fund’s investor that its investments were made as a principal and not on behalf of any other person, a statement from the group said.

K-India Opportunities Fund (KIOF) is a Sebi-registered foreign portfolio investor and is regulated by the Financial Services Commission of Mauritius, the statement said.

"The Fund was established in 2013 to enable foreign clients to invest in India. The Fund follows due KYC procedures while onboarding clients and all its investments are made in accordance with all applicable laws. We have cooperated with regulators in relation to our operations and continue to do so," the statement said.

Earlier, Hindenburg stated that Kotak Mahindra Bank and brokerage firms founded by Uday Kotak created and managed the offshore fund structure used by Hindenburg's investor partner to short Adani stocks. The US-based short seller questioned why SEBI failed to mention Kotak Bank in its observations.

“While Sebi seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead, it simply named the K-India Opportunities Fund and masked the name 'Kotak' name with the acronym 'KMIL',” Hindenburg said in an update.

Hindenburg alleged that SEBI's omission of Kotak's name might be intended to shield the businessman from scrutiny.

"Uday Kotak, founder of the bank, personally led SEBI’s 2017 Committee on Corporate Governance. We suspect SEBI’s lack of mention of Kotak, or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace," Hindenburg said.

SEBI served a 46-page show cause notice to Hindenburg Research regarding its Adani Report on June 27, the firm said in a blog post on July 2.

The blog post said that the firm was short on Adani shares 'through a deal with an investor partner who was indirectly short Adani derivatives through a non-Indian, offshore fund structure'.

The post said SEBI notice restates its stance that Hindenburg had sufficiently revealed that it was short on Adani shares, 'so readers could weigh the potential for bias given that we stood to benefit from a decline in Adani shares.'

On January 24, 2023, Hindenburg Research published a report accusing Adani group companies of stock manipulation and accounting fraud, just before a proposed Rs 20,000 crore share sale by Adani Enterprises.

The conglomerate dismissed the report as malicious and baseless.

Meanwhile, India's Supreme Court ruled in January that the Adani Group would not face any further investigations beyond SEBI's current scrutiny, providing relief to the conglomerate.

SEBI has been investigating the Adani group for tax haven use and stock manipulation.

The verdict indicated no increased regulatory risk for Adani and the court also decided against changing disclosure rules for offshore funds, despite Hindenburg's allegations.