Source : INDIA TODAY NEWS
The Securities and Exchange Board of India (Sebi) has started hearings in a case involving trades linked to Hindenburg Research’s report on the Adani Group, Reuters reported, citing two people familiar with the matter. Sebi is seeking to recover gains from trades it believes may have been based on information about the report before it was published.
SEBI BEGINS HEARINGS
Sebi has started personal hearings in the case, more than two years after the trades took place, the people said.
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The parties involved took time to respond to the regulator, the report mentioned. All the parties are based overseas, but Sebi believes it has jurisdiction because the trades were carried out in India.
One of the people said Sebi is moving ahead with enforcement action because it believes the trades were based on non-public information. Such trading would breach rules aimed at preventing fraud.
TRADES MADE BEFORE HINDENBURG REPORT
Sebi said in 2024 that US-based Kingdon Capital Management had built short positions in Adani-related stocks before Hindenburg published its report in 2023.
The trades were made through K India Opportunities Fund Class F, a Mauritius-based fund linked to Kotak International.
A short position involves selling borrowed shares and later buying them back if the price falls. The trader can then make a profit from the difference.
Hindenburg’s 2023 report alleged that the Adani Group had violated securities laws. The report was followed by a sell-off in related shares. The Adani Group denied wrongdoing.
Sebi dismissed Hindenburg’s allegations of stock manipulation against the group.
$22.25 MILLION GAINS FLAGGED BY SEBI
In 2024, Sebi detailed a profit-sharing agreement between Hindenburg and Kingdon. The regulator said six entities made $22.25 million from short-selling trades.
Hindenburg has previously denied wrongdoing.
Also, Sebi, Hindenburg, Kingdon and Kotak did not respond to Reuters’ requests for comment.
SEBI SEEKS TO PROTECT FUND ASSETS
The case has also moved into insolvency proceedings in Mauritius.
Sebi has opposed court-supervised insolvency proceedings involving K India Opportunities Fund Class F, the Kotak-linked fund used to carry out the trades. The regulator’s aim is to secure the fund’s assets for possible recovery, the people said.
The proceeds from the trades went into the fund, according to the people.
Meanwhile, it could not be determined whether the gains were distributed or redeemed by Kingdon, which was the fund’s beneficiary, the report mentioned.
After learning about the insolvency proceedings, Sebi asked the court-appointed receiver in the first week of July to ensure that the fund’s assets were not transferred or distributed before the regulator ordered the recovery of the alleged gains and interest.
MAURITIUS COURT APPOINTS RECEIVER
Mauritius’ Supreme Court appointed the managing director of business advisory and restructuring firm Quantuma as receiver in June, the people said.
The receiver was appointed to control and protect the fund’s assets.
The case is being watched closely because it involves Sebi’s efforts to pursue entities based overseas and recover assets held outside India. It has also involved an unusual attempt to seek a stay in a foreign insolvency proceeding as Sebi pursues enforcement action.
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SOURCE :- TIMES OF INDIA
