Kotak Mahindra Bank Under Scrutiny: Hindenburg Research Alleges Involvement in Offshore Fund Used to Short Adani Stocks

In a startling revelation, US-based short seller Hindenburg Research has accused Kotak Mahindra Bank of creating and overseeing an offshore fund structure utilized by an investor partner to short Adani stocks. This assertion was made public in an update released on July 2, sparking discussions about the bank’s role and the integrity of market regulations in India.

Hindenburg Research’s Allegations

Hindenburg Research, known for its critical reports on various companies, questioned the Securities and Exchange Board of India’s (SEBI) decision not to name Kotak Mahindra Bank in its observations related to the Adani investigation. The firm criticized SEBI for allegedly protecting influential individuals by not mentioning Kotak Bank, despite its significant involvement.

“While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead, it simply named the K-India Opportunities fund and masked the ‘Kotak’ name with the acronym ‘KMIL’,” Hindenburg stated.

SEBI’s Actions and Alleged Protection of Influential Figures

The short seller firm further alleged that SEBI’s omission of Kotak’s name might be intended to shield Uday Kotak from scrutiny. Hindenburg pointed out that Uday Kotak personally led SEBI’s 2017 Committee on Corporate Governance, suggesting a possible conflict of interest. “We suspect SEBI’s lack of mention of Kotak, or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace,” Hindenburg said.

Despite attempts to seek comments from Kotak Mahindra Bank, no response was received at the time of the report’s publication.

The Hindenburg Report and SEBI’s Show Cause Notice

Hindenburg’s update also revealed that it had received a show cause notice from SEBI regarding its report on the Adani Group. The 46-page notice, delivered on June 27, outlined the regulator’s concerns. Hindenburg reiterated that it had disclosed its short position on Adani shares to allow readers to assess potential biases.

The original report by Hindenburg, published on January 24, 2023, accused the Adani Group of stock manipulation and accounting fraud. This came ahead of a significant Rs 20,000 crore share sale by Adani Enterprises, which the conglomerate dismissed as malicious and baseless.

Supreme Court’s Verdict and SEBI’s Ongoing Investigation

In January, India’s Supreme Court ruled that the Adani Group would not face any additional investigations beyond SEBI’s current scrutiny, providing relief to the conglomerate. SEBI has been investigating the Adani Group for potential use of tax havens and stock manipulation. The court’s decision indicated no further regulatory risks for Adani and maintained existing disclosure rules for offshore funds despite Hindenburg’s claims.

In Conclusion, The allegations made by Hindenburg Research against Kotak Mahindra Bank and the subsequent response from SEBI highlight significant issues within India’s financial regulatory environment. As the investigation continues, the financial community will be watching closely to see how these allegations impact the reputations of the involved parties and the broader market integrity.