NEW DELHI: Hindenburg’s reports have resulted in its target companies’ stock prices tumbling. There are thus allegations that Nate Anderson’s company self-finances its activities from the money made from such slides. The company does not hide the fact that it holds short positions in companies like the Adani Group. In this case, it was through US-traded bonds and other investments that trade outside India.
Earlier, the short seller made similar ‘reports’ against other companies and then profited with the fall of its targeted stocks or bonds.
Some reports claim that Anderson has acknowledged that Hindenburg teams up with outside investors. However, no names or details have been shared about such investors.
In some cases such unidentifiable ‘teammates’ – who must be extremely wealthy and influential – can prove helpful without facing the scrutiny that comes with short selling. However, such relationships may also lead to pressure and conflict of interest.
“Regulators in America may soon force additional transparency,” The Economist wrote while mentioning the above, adding, “In the meantime, Hindenburg will continue to seek out potentially flammable marks.”
Social media abuzz
The social media is, meanwhile, abuzz with bits and pieces of information about the short seller. Tweeple surmised that Hindenburg is facing criminal investigation in some states in the US, some said that its bank accounts were seized for a long time due to its fraudulent practices while others shared that the firm was banned from publishing any report about companies in the NYSE. None of these, however, is verifiable.
Some critics have alleged unverified connections. In 2020, Hindenburg published a report on Nikola saying, “…we believe Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career.
“We have gathered extensive evidence – including recorded phone calls, text messages, private emails and behind-the-scene photographs – detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception at a public company, especially of this size.”
Incidentally, Nikola was once being touted as “the foil to Tesla, the highflying electrical car company run by CEO Elon Musk”.
‘Twitter is an asset’
Then in May 2022, Hindenburg published a report titled “Musk Holds All The Cards: We See a Significant Risk That The Twitter Deal Gets Repriced Lower” where it said: “In our view, Musk holds all the cards here. The board quickly agreed to the deal when conditions were vastly more favorable, and we think they’d make the right decision again when faced with the present reality”.
It went on to add “Twitter Is An Asset That Should Be Protected: We agree with Elon Musk that Twitter has become the de facto public square. We also agree that the pressures of being a public company make it harder to advance the mission of Twitter serving as an open, trusted forum for diverse ideas.
“Twitter has played a key role in democratizing financial research, a field that large Wall Street banks monopolized for decades.”
Sued only twice
According to a news agency report, apparently only two of its targets have actually sued Hindenburg for defamation.
In December 2018, Hindenburg had published “We are of the strong opinion that Yangtze River Port & Logistics is a scheme run by its Chairman & controlling shareholder to siphon money away from U.S. public markets.” Yangtze sued Hindenburg, Anderson, and another company for defamation in New York State Supreme Court in Manhattan, where Hindenburg is based.
The judge dismissed the suit, holding that the alleged defamatory statements were opinions and protected by the First Amendment. He ruled that its views were based on public documents that the short seller had even included hyperlinks.
The First Amendment guarantees freedoms concerning religion, expression, assembly, and the right to petition. It includes guarantee to freedom of expression by prohibiting Congress from restricting the media or the rights of individuals to speak freely.
Another suit by the entertainment and movie library Eros was similarly dismissed. On August 2, 2017, Hindenburg published what is the earliest report on its website “Eros Earnings Review: An Abundance Of Red Flags”.
It is time to insulate the market from not all short sellers but those who directly influence the market, especially taking advantage of the prevailing political and economic environment.
While the Securities and Exchange Board of India (Sebi) needs to examine the allegations against the Adani group, it also needs to scrutinise the charges levelled by the short seller. Otherwise, external forces will lie heavily on Indian markets.