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A small American financial research and trading company (that is, dealing with the buying and selling of online financial instruments) lost more than that ten billion dollars to the group of companies of Gautam Adani, the richest person in India and Asia, as well as the third richest in the world. She did this by publishing i results of an investigation lasting more than two years who accuses him of having built his wealth through illegal and fraudulent practices, implemented thanks to a dense network of offshore companies, i.e. registered in tax havens.
The research company is called Hindenburg and is led by Nathan Anderson, a financial analyst who over the years has been more interested in discovering scams than the market. Hindenburg has about ten employees, and over the years it has built up a rather ambivalent reputation: on the one hand, there are those who appreciate the research and investigations it carries out, which have often revealed illicit and fraudulent behavior by important figures and companies in the world of the business. On the other hand, those directly involved in the investigations accused her of spreading untruthful information to make her own profit through the short selling of financial stocks.
Lo short selling it is a widespread financial practice with purely speculative purposes: it is the so-called short sale, with which an operator sells a security without actually owning it, with the promise of delivering it to the buyer shortly after. Traders do this because they bet on the fact that the price of the stock will fall between the sale and delivery, so as to make a profit. For example, trader A decides to short sell the stock of company X for €100 to trader B. He cashes in €100 and in the time between the sale and the delivery of the stock – typically short, it can be a few hours or a few days – effectively the market price drops to 80 euros. At the moment in which he has to deliver it, he buys it at a reduced price and in the end he finds himself with a net profit of 20 euros.
Obviously this is a bet on the performance of the stock: on the contrary, the price could rise and in this case the short seller would lose. Precisely because it is not considered an investment instrument but only a speculative one, short selling is strictly regulated and in moments of particular financial tension the authorities have even gone so far as to prohibit it (as happened in many countries, including Italy, at the beginning of the pandemic when panic broke out on the financial markets).
The Hindenburg company did just that with Adani’s group, but also in the case of other investigations: it sold short securities linked to the activities of the Indian billionaire, aware of the fact that the price would drop significantly thanks to the publication of his investigation.
Hindenburg’s reports are highly successful and have often succeeded in exposing illegal practices, but at the same time Anderson and company are claimed to sometimes profit from the financial meltdown of the individuals or companies they target. As a result, Anderson has often been referred to as an “activist investor.” The company name, Hindenburg, takes its cue from theairship of the same name German which in 1937 exploded during landing, causing the death of dozens of people: sul site of the company we read that they chose this name to evoke a man-made and totally avoidable disaster, exactly like the financial woes the company sets out to uncover. Since 2020 he has investigated about thirty companies and, on average, after his reports the shares have plunged by 15 percent the next day and by 26 percent within six months, according to calculations by Bloomberg.
The latest investigation concerns the Indian billionaire Gautam Adani, who is 60 years old, owns a group of companies worth a total of 260 billion dollars and is very close to Indian Prime Minister Narendra Modi, so much so that he is defined by critics as “Modi’s oligarch”. From the 1980s to today, it has built up an economic empire in the field of infrastructure and energy: it owns the second largest construction company in the country, thirteen ports (including the largest in the Indian subcontinent, that of Mundra), some including the one under construction between Delhi and Mumbai, eight airports, six coal plants at home and two abroad (Indonesia and Australia). In recent years he has been converting many of his investments into renewable energy, a sector in which he expects to gain world leadership by 2030. His latest goal has been the acquisition of the television network New Delhi Televisionone of the largest in the country and one of the few Indian media recognized as independent and not controlled by the government.
– Read also: How Gautam Adani is changing India
According to the report published by Hindenburg, Gautam Adani’s brother, Vinod, would manage “a large labyrinth of offshore shell companies”, which according to the investigation should number at least 38 and would be used for various purposes: to keep part of the assets hidden abroad of the family, to launder money but also to use it when the companies of the group needed it, so that they always appeared financially sound.
The allegations were taken very seriously by the market, both because for some time observers had suspected opaque mechanisms within Adani’s group, but also because the previous investigations by Hindenburg and Anderson had proved to be well founded. Among these, the most striking concerned the American company Nikola, which produced electric vehicles: after the Hindenburg investigation, the founder Trevor Milton, who was accused of having made agreements with partners such as General Motors by pretending to have a technology vanguard, was indicted for fraud.
NEW FROM US:
Adani Group – How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate Historyhttps://t.co/JkZFt60V7f
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— Hindenburg Research (@HindenburgRes) January 25, 2023
Meanwhile, Adani’s group has rejected all the allegations contained in Hindenburg’s report, arguing that they represent a “malicious assortment of targeted disinformation” and are aimed only at manipulating the market for their own gain. Jatin Jalundhwala, head of the group’s legal team, said they were considering alegal action.
Media statement on a report published by Hindenburg Research. pic.twitter.com/ZdIcZhpAQT
— Adani Group (@AdaniOnline) January 25, 2023
