Nate Anderson-led Hindenburg Research could find itself in hot water, as the Securities & Exchanges Commission in the United States tightens its grip on shortsellers.
On Friday, the American capital markets regulator announced action against shortselling firm Citron Capital and its head Andrew Left, for alleged ill-gotten gains.
According to a statement by the SEC, Left and Citron advised their followers to either buy or sell certain stocks on the basis of their research report, while advertising their own position. However, once the followers started trading in the stocks, Citron would immediately reverse its position and earn gains.
"We uncovered these alleged bait-and-switch tactics, which netted Left and his firm $20 million in ill-gotten profits and we intend to hold Left and his firm accountable for their actions," the SEC said in its statement.
SEC's complaint, filed in the United States District Court for the Central District of California, charges Left and Citron Capital with violating anti-fraud provisions of the federal securities laws.
The US capital markets regulator and other enforcement agencies have been investigating shortsellers since 2021, after the turbulent trades in the GameStop shares. The investigation caught further steam after In May 2023, Reuters quoted a Department of Justice official, claiming that action against shortsellers was likely.
The allegations against Left and Citron sound similar to what Securities and Exchanges Board of India has claimed in the Hindenburg Research shortselling case. In January last year, Hindenburg Research published a report on Adani Group's stocks which led to a large sell-off in the Indian markets. In the months after, Adani Group stocks have recovered.
This is what Hindenburg apparently did after Adani accusations too. Made that big short report and when the stock price fell, covered his shorts. (Remember, he wrote it as if they were going to zero, not like they were "mildly overvalued") https://t.co/aGrzljxTi9
According to SEBI's show cause notice, Hindenburg colluded with hedge fund manager Mark Kingdon and his entities in a scheme devised to use advance knowledge of non-public information to build short positions.
The regulator alleged that Kingdon entered into a legal agreement with Hindenburg Research to share the draft report in advance with the foreign investor, before it was officially released on Jan. 24, 2023.
As part of SEBI's investigation, it has had information exchange with the US capital markets regulator. In its show cause notice, SEBI has spoken about a subpoena issued by the SEC to Hindenburg Research in the matter of suspicious trades in Adani Group stocks.
While speaking to Bloomberg Television on Friday, Bailey Lipschultz, senior equities reporter at Bloomberg News said that the news portal was closely watching to see if other prominent names that were part of this investigation are going to be facing similar lawsuits.
In its public response to SEBI's show cause notice, Hindenburg Research has claimed that it earned a paltry $4.1 million in revenue related to the Adani short.
"Net of legal and research expenses (including time, salaries/compensation, and costs for a 2-year global investigation) we may come out ahead of breakeven on our Adani short," Hindenburg had said in its response on July 1.
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