WASHINGTON: Hindenburg Research has denied allegations by India’s securities regulator that it colluded with a US asset manager to use non-public information to set up a short bet against Adani Group last year, which if proven would breach the country’s rules. Hindenburg posted a copy of a 46-page “show cause” notice from the Securities and Exchange Board of India (SEBI) outlining the allegations on its website on Monday, in the latest twist to a saga that began last year when the US-based short-seller alleged improper business dealings by Adani.

The notice said that six entities including Hindenburg, Kingdon Capital Management and a Mauritius-based trading fund set up by Kotak Mahindra Bank violated certain rules under the Prevention of Fraud and Unfair Trade Practices regulation. It was dismissed in a statement by Hindenburg as “nonsense”.

Kingdon did not respond to an emailed request for comment on Tuesday. Hindenburg’s statement did not mention its relationship with Kingdon and did not respond to an email requesting comment. “SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it,” Hindenburg said in its statement on the notice, which two sources at SEBI with direct knowledge of the matter confirmed to Reuters was authentic.

Adani, which has consistently denied Hindenburg’s allegations, suffered a loss of as much as $150 billion in combined market value after the report, but its share price has since recovered to the same levels as before. SEBI did not respond to a request for comment on Tuesday on Hindenburg’s statement or the show cause notice. If proven, the alleged breaches could result in financial penalties and the repayment of any gains deemed to have been illegal.

Hindenburg said in its statement that it made $4.1 million in gross revenue through “gains related to Adani shorts from that investor relationship” and just $31,000 through its short position of Adani’s US bonds. It did not name the investor. “It was a tiny position,” said Hindenburg, whose response sheds some light on its Adani short, which intrigued other investors because Indian securities rules make it hard for foreigners to bet against companies there.

SEBI alleges Hindenburg colluded with its client Kingdon Capital Management by providing a draft of its report on Adani Group before it was released publicly.

Mark Kingdon, the owner of Kingdon Capital, then set up a fund able to trade Indian equities known as K Indian Opportunities Fund, SEBI alleges. That fund created short positions in Adani group stocks between Jan 10, 2023, and Jan 20, 2023, five days before Hindenburg’s report was published.

Hindenburg said a Mauritius registered unit of Kotak Mahindra Bank, an Indian firm, created and oversaw an offshore fund structure that was used by its “investor partner” to bet against Adani’s shares. The positions were squared off in February, leading to gains of $22.25 million, the SEBI documents said.

A spokesperson for Kotak Mahindra International Ltd, under which the fund operated, said Hindenburg had never been a client of K India Opportunities Fund and that its Mauritius registered unit has received a declaration from the fund’s investor that its investments were not made on behalf of anyone else. “The Fund was never aware that Hindenburg was a partner of any of its investors,” the statement said. Shares of Kotak Mahindra Bank which fell as much as 3.93 percent, trimmed some of the losses after the statement. — Reuters