India regulator pursues Adani case gains from offshore entities

India's market regulator, the Securities and Exchange Board of India (SEBI), has initiated hearings to recover alleged illicit gains from trades conducted with prior knowledge of Hindenburg Research's critical report on Adani Group. The regulator suspects that offshore entities, including U.S.-based Kingdon Capital Management and a Mauritius-based fund linked to Kotak International, built short positions in Adani-related stocks before the report's publication.

Hindenburg's January 2023 report alleged that Adani Group had violated securities law, which led to a significant selloff of its shares and a substantial drop in its market value. While SEBI previously dismissed Hindenburg's allegations of stock manipulation against the conglomerate, it has since detailed a profit-sharing agreement between Hindenburg and Kingdon. SEBI asserts that six entities collectively gained $22.25 million from these short-selling trades, which it argues were based on non-public information, thus violating rules against fraud.

The case is seen as a precedent for pursuing offshore entities and recovering assets internationally. SEBI is actively opposing insolvency proceedings in Mauritius for the specific fund, K India Opportunities Fund Class F, used to execute these trades, aiming to secure the alleged gains and interest. A receiver was appointed in June to manage the fund's assets, and SEBI has formally requested that these assets not be transferred or distributed before its recovery orders are enforced.