Hindenburg's Hindenburg: When Short Sellers Crash the Billionaire Party

So, back in January 2023, this group called Hindenburg Research - they're like the financial world's whistleblowers - dropped a huge report about Adani Group, one of India's biggest conglomerates. They claimed that Adani's executives were manipulating the company's stock price. Now, Adani and its founder Gautam Adani strongly denied this, but the damage was done. The report wiped out a whopping $140 billion from Adani's market value! That's no small change.

Here's where it gets really interesting. A hedge fund in New York, over 8,000 miles away from Adani's HQ, saw this coming. Kingdon Capital Management had actually received a draft of Hindenburg's report back in November 2022. They had this agreement with Hindenburg from a year earlier. Smart move, right?

Kingdon set up a special fund in Mauritius and started betting against Adani two weeks before the report went public. They ended up making a $22 million profit from this trade. And get this - Hindenburg got a 25% cut of those profits. That's the kind of deal these activist short sellers often have with hedge funds.

Now, this whole situation has put a spotlight on how activist short sellers work. Unlike traditional short sellers who just look for overvalued companies, these guys are actively seeking out evidence of wrongdoing. They're not just waiting for the market to correct itself - they're blasting out their findings through interviews, social media, you name it.

Some people love them, thinking they're keeping the market honest. Others? Not so much. People say the critics are making their own warnings come true by freaking everyone out about how the company runs things.

The regulators are starting to pay attention, too. The U.S. Department of Justice and the Securities and Exchange Commission launched a big investigation into short selling in 2021. They're looking at these relationships between hedge funds and researchers.

Despite all this, many short sellers are standing their ground. They believe they're doing important work, catching frauds and keeping the market clean. It's not an easy job though - they face legal – and sometimes even physical threats.

It's a complex world, this activist short selling. On one hand, they might be uncovering real issues. On the other, their actions can have huge impacts on companies and markets.

#activism #MuddyWatersResearch #Capitec #SEBI