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India’s capital markets regulator has asked a clutch of global funds to defend themselves against allegations of improper disclosures and market manipulation relating to trading of Adani Group stocks, according to people familiar with the matter.

The Securities and Exchange Board of India, or Sebi, has taken this action against two separate groups of foreign portfolio investors. The group facing market manipulation allegations are suspected to have shorted stocks in firms led by billionaire Gautam Adani after getting wind that a short seller report would be published soon, the people said, asking not to be identified as the details are not public. The people did not name the funds.

The short seller report in question, from US-based Hindenburg Research, sliced off over $100 billion in market value for the Adani Group soon after it was published in January 2023.

The second group to receive Sebi’s so called show-cause notices are overseas funds that Hindenburg alleged were linked to the Adani Group’s founders.

Sebi is seeking an explanation from these funds as it looks into possible violation of disclosure norms, the people said. The conglomerate has repeatedly denied any links to the funds, which faced intense scrutiny in June 2021 for investing almost all of their assets in Adani stocks. 

A representative for Sebi didn’t immediately respond to a request for comment. A spokesperson for the Adani Group did not offer any comment.

The regulator will issue a final order in these probes, which could take a few months or more, after hearing the funds’ explanations.

Draw a Line

Sebi’s findings in these two long-standing probes will draw a line under the Hindenburg episode, at least domestically. India’s top court said in January that there would be no more probes in this saga after the regulator closes its investigation. 

The Indian markets regulator has accused the funds of failing to maintain and disclose information about their ultimate beneficial owners as well as for breaching investment limits in listed entities of Adani Group during certain periods, according to a report Monday in The Economic Times. 

The legal representatives of eight investors in this group of investors — Albula Investment Fund, Cresta Fund, MGC Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund and LTS Investment Fund — are looking to settle with Sebi by paying fines without admission of guilt, the media report said.

The Sebi probe was expanded at the Supreme Court’s behest to include market manipulation after Hindenburg accused the Adani Group of fraudulently pumping up its stock prices through a web of undisclosed overseas funds. The conglomerate has denied Hindenburg’s allegations.

The Adani Group’s stocks have been on a rollercoaster ride in the past few years. Some of its firms saw stock gains of more than 1,000% between 2020 and early-2023, leaving them valued at price-earnings ratios much higher than peer companies and fueling speculation over which investors were bidding them up.

Then came the epic rout triggered by Hindenburg’s report, sending shares plunging. Adani’s bonds and stocks mostly recovered since and the group is back to making investments and raising funds. 

--With assistance from P R Sanjai and Menaka Doshi.

(Updates to say that Hindenburg made these allegations in the fourth paragraph.)

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