Mumbai: The Securities and Exchange Board of India (SEBI) has started personal hearings in a case involving trades linked to the 2023 Hindenburg Research report on the Adani Group, as the market regulator seeks to recover gains it believes were made using information about the report before its public release. Reuters reported the development, which was also carried by India Today.
The proceedings mark a fresh stage in one of the most closely watched regulatory cases involving offshore investors, short-selling and the use of non-public information. The parties involved are based overseas, but SEBI believes it has jurisdiction because the trades in question were carried out in India.
The regulator’s action does not amount to a final finding of wrongdoing against Hindenburg Research or the other parties. The hearings are part of SEBI’s enforcement process, with the regulator seeking to establish whether the trades breached rules intended to prevent fraudulent or unfair trading.
SEBI focuses on trades before Hindenburg report
The case centres on short positions taken in Adani-related stocks before Hindenburg published its report in January 2023.
SEBI had said in 2024 that US-based investment firm Kingdon Capital Management built short positions through K India Opportunities Fund Class F, a Mauritius-based fund linked to Kotak International.
A short position involves borrowing shares and selling them, with the trader later buying them back at a lower price if the stock falls. The difference between the selling and repurchase prices can generate a profit.
In this case, the timing of the trades has become a central issue because they occurred before Hindenburg’s report became public.
SEBI’s contention is that the trades may have benefited from advance knowledge of the report. The regulator is proceeding on the basis that such use of non-public information could violate regulations aimed at preventing fraudulent trading.
What did the Hindenburg report say?
Hindenburg Research published its report on the Adani Group in January 2023, alleging various securities-law violations and other financial irregularities.
The report triggered a sharp sell-off in Adani Group companies and wiped out around $150 billion in group market value at the time, according to Reuters. The Adani Group denied the allegations.
The Adani Group’s response and the subsequent market turmoil made the episode a major event for Indian capital markets.
However, the current SEBI proceedings are focused on a different question. Rather than determining whether the allegations made in Hindenburg’s report were correct, the regulator is examining whether certain investors obtained or used information about the report before it was released and profited through short positions.
SEBI has previously dismissed Hindenburg’s allegations of stock manipulation against the Adani Group, according to the India Today and Reuters reports.
SEBI had flagged $22.25 million in gains
SEBI said in 2024 that six entities had made about $22.25 million from the short-selling trades connected with the case.
The regulator also detailed a profit-sharing arrangement between Hindenburg and Kingdon. Hindenburg has previously denied wrongdoing and criticised SEBI’s assertions.
The issue is now moving into the personal-hearing stage, more than two years after the trades took place.
According to people familiar with the matter cited by Reuters, the proceedings took time to reach this stage because the parties involved needed time to respond to the regulator. Since the parties are based outside India, the jurisdictional question is also an important part of the case.
Why Mauritius has become important
The regulatory action has extended beyond India because the fund used for the trades is based in Mauritius.
SEBI has opposed court-supervised insolvency proceedings involving K India Opportunities Fund Class F, arguing that the fund’s assets should remain available for potential recovery of the alleged gains and interest.
The proceeds from the trades went into the fund, according to people cited by Reuters. However, Reuters said it could not establish whether the gains were subsequently distributed or redeemed by Kingdon, which was the fund’s beneficiary.
This has created another legal dimension to the case. SEBI is attempting to ensure that assets potentially linked to the disputed gains are not transferred or distributed before the regulator can complete its enforcement action.
Mauritius court appoints receiver
The Mauritius Supreme Court appointed the managing director of business advisory and restructuring firm Quantuma as a receiver in June, according to Reuters.
The receiver’s role is to control and protect the fund’s assets during the proceedings.
SEBI subsequently approached the court-appointed receiver in the first week of July and asked that the fund’s assets not be transferred or distributed before the regulator ordered recovery of the alleged gains and interest.
The move illustrates how the Indian regulator’s enforcement efforts have expanded into another jurisdiction as it seeks to preserve assets outside India.
Hindenburg, Kingdon and Kotak did not comment
Reuters reported that SEBI, Hindenburg Research, Kingdon Capital Management and Kotak did not respond to requests for comment on the latest proceedings.
Hindenburg has previously denied wrongdoing in connection with the allegations made by SEBI.
That distinction is important because the latest development concerns allegations that remain subject to regulatory proceedings. The beginning of personal hearings should not be interpreted as a final determination that the parties violated securities laws.
A significant test for offshore enforcement
The case is being closely watched because it tests how far India’s market regulator can pursue offshore entities and assets when transactions have a connection with Indian markets.
SEBI’s position is that the location of the entities does not prevent it from exercising jurisdiction when the underlying trades were conducted in India. The regulator is also seeking to protect potential recoverable assets in a foreign insolvency process.
If SEBI succeeds in establishing that the trades were based on non-public information, the case could have wider implications for how offshore funds, research firms and other market participants handle sensitive information connected to Indian securities.
It could also strengthen regulatory scrutiny of trading activity that takes place immediately before major market-moving reports or corporate disclosures.
What happens next?
The personal hearings are expected to allow the concerned parties to present their representations before SEBI.
The regulator will ultimately have to establish its case under the applicable securities regulations before any final enforcement or recovery action can be taken.
For now, SEBI is also working to preserve the assets of the Mauritius-based fund while the proceedings continue. The outcome could determine whether the regulator can recover the gains it has alleged were generated through the pre-publication trades.
The case therefore extends beyond the controversy surrounding the Hindenburg report itself. It now centres on questions of market conduct, access to non-public information, offshore trading structures and the ability of Indian regulators to pursue assets held abroad.
Conclusion
SEBI’s decision to begin personal hearings represents a significant new phase in the long-running Hindenburg-Adani saga. The regulator is seeking to recover gains that it believes were generated from short positions taken before Hindenburg’s 2023 report became public.
SEBI has identified about $22.25 million in gains linked to six entities and is also attempting to protect assets held through a Mauritius-based fund.
However, the proceedings are still ongoing. The allegations against the parties have not been finally adjudicated, and the latest hearings should not be treated as proof that the alleged violations occurred.