Forwarding its reputation as the “Grim Reaper” of enterprises of dubious reputation, notorious short-seller Hindenburg Research blasted Indian conglomerate Adani Group for having “…engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” At the heart of the matter stands Gautam Adani, India’s richest man and Founder and Chairman of his namesake conglomerate.
According to the Wall Street Journal, Gautam Adani overtook Jeff Bezos of Amazon (NASDAQ:AMZN) fame in September last year as the second-richest person in the world. However, as of Jan. 24, 2023, Adani has since fallen back to fourth place. The billionaire industrialist is almost neck and neck for third place on the wealth spectrum with Bezos. According to the Bloomberg Billionaires Index, Adani commands a net worth of $119 billion compared to Bezos’ $120 billion.
Notably, Gautam Adani represents the first person from Asia who has ranked so high on Bloomberg’s wealth index. As the WSJ pointed out, U.S. tech entrepreneurs dominate the rankings. According to another article from the news agency, Adani (61 years old) built his fortune over decades through his business empire that covers green energy, power and gas distribution.
Inherently, the Hindenburg report sparked both controversy and awkwardness. Due to the dominance of the Adani Group, Gautam Adani has become ingrained in everyday Indian society. Per the WSJ, “his coal mines and power plants provide electricity to huge swaths of the country, while his companies also sell the piped gas and edible oils that families use to cook meals.”
The Adani Group is composed of seven India-listed companies, which include Adani Enterprises and Adani Transmission. Their shares fell between 1.5% and 8.9% on Wednesday, the WSJ reported.
Gautam Adani Is in Hot Water
Although Hindenburg never holds back in its skepticism toward potentially unsavory enterprises, even the short seller likely caught jaded observers off guard. In its expose, the research firm alleges that Gautam Adani pulled the largest con in corporate history.
In addition to stock manipulation and accounting fraud, Hindenburg alleged that Adani Group “…has previously been the focus of 4 major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption, totaling an estimated U.S. $17 billion.”
As well, the short seller noted that “Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.”
If that wasn’t enough, the research firm also alleged that the Securities and Exchange Board of India took a lax approach in investigating the offshore funds of Gautam Adani, per a CNBC report. Moreover, Hindenburg claims that the regulatory agency failed to properly enforce protocol. If it had, the short seller asserts that the Adani companies would face delisting.
On the other end, the Adani Group called the accusations a “malicious combination of selective misinformation.” It also added that it always complied with all laws.
“The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation,” the group’s chief financial officer Jugeshinder Singh wrote in an email to CNBC.
Why It Matters
Regarding the allegations against Gautam Adani, two quantitative concerns exist. First, as Fintel’s Ben Ward mentioned, “Hindenburg believes that 5 of the 7 key listed companies have reported current ratios below a value of ‘1’ which indicates near-term liquidity pressure.”
Second, while Adani companies currently only trade on India’s stock exchange, several exchange-traded funds have exposure to the affected organizations. Per Fintel, the ETFs with the greatest exposure are First Trust India Nifty 50 Equal Weight ETF (NASDAQ:NFTY), First Trust Emerging Markets AlphaDEX Fund (NASDAQ:FEM) and iShares MSCI Emerging Markets Multifactor ETF (BATS:EMGF).
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.