A bear cartel led by six entities, including four foreign portfolio investors (FPIs), a corporate body and an individual who are likely to have targeted Adani Group shares just days ahead of the publication of the Hindenburg Report and then squared off their positions with a huge profit amidst the panic, are under the scanner of SEBI for suspected manipulation.

A report from US-based obscure short-seller Hindenburg Research on January 24 unleashed a wave of short bets on Adani Group companies, leading to a stock rout that crashed the conglomerate’s market valuation by more than $125 billion. The Supreme Court- appointed expert committee has noted in its report that the “Enforcement Directorate has found intelligence about potentially violative and concerted selling by specific parties just ahead of the publication of the Hindenburg report, and this may lead to credible charges of concerted destabilisation of the Indian markets and SEBI ought to be probing such actions under securities laws.”

Short selling

businessline had reported on February 11 about the rampant short selling in Adani Group shares before publishing the Hindenburg Report through the use of structured product derivatives (SPDs) - potent stock market instruments, tailor-made by foreign brokers for large clients in offshore jurisdictions. These SPDs are similar to the controversial participatory notes in many ways since the identity of the actual clients stays hidden, unless the regulators lift the veil.

“The trading pattern here (of the six entities) is suspicious because of the build-up of short positions by these entities in the Adani scrips prior to the Hindenburg Report, and substantial profits earned by them by squaring off their short positions after publication of the Hindenburg Report,” SEBI told the expert committee.

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In return, the committee has asked SEBI to prepare charts with data across all the Adani stocks and present the same for analysis with an intent to probe those who built short positions just ahead of the publication of the report and profited from the price crash.

“It is noteworthy that strong feedback on the Hindenburg Report is that it contained no new data but was substantially a collection of inferences from data in the public domain. The Committee is equally cognizant of the fact that the allegations in the Hindenburg Report are substantially based on publicly available information. However, the manner in which it has extrapolated the information and presented it, has led to a serious nose-dive in the prices of Adani stocks,” the expert committee has noted in its recent report.

Hindenburg itself had revealed that it “held short positions in Adani companies through bonds and non-Indian-traded derivative instruments.”

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