New Delhi: In 1937, a hydrogen-powered German airship taking off from New Jersey caught fire and crashed, killing 35 people on board. It was a man-made disaster of sorts as about 100 people were loaded onto a balloon filled with the most flammable material in the universe. The airplane was named the Hindenburg.
Eight decades later, in 2017, a graduate of international business management from the University of Connecticut founded a “forensic financial research” firm that specializes in spotting wrongdoing and fraud, or what he calls man-made disasters, in companies around the world. is an expert. The market bets against them. Founder Nathan (Nate) Anderson named his firm Hindenburg Research.
Last week, a Hindenburg Research report on Indian tycoon Gautam Adani’s business empire led to a USD 51 billion selloff in shares of his group companies, pushing him down four places on the World Billionaires Index.
The report said that the Adani group “engaged in an open stock manipulation and accounting fraud scheme over the course of decades”. The disclosure comes just ahead of Adani Enterprises’ Rs 20,000 crore open offer of shares to investors.
The Adani Group has since dismissed the report as a “malicious combination of selective misinformation and stale, baseless and discredited allegations”. However, that didn’t stop investors from selling.
On Friday, shares of Adani group companies continued to slide for the second day, with Adani Enterprises plunging 18.5 per cent and Adani Ports and SEZ 16 per cent, sending the broader benchmark index – Sensex – down 874.16 points, or 1.45 per cent. Gone. St.
What Hindenburg Research Does Hindenburg engages in activist short selling, which involves selling borrowed stock in the hopes of buying it later at a lower price. If the prices fall as expected, the short sellers end up with huge losses.
Hindenburg, which invests its own capital, bases such bets on its research, which looks for “man-made disasters” such as accounting irregularities, mismanagement and undisclosed related-party transactions.
It specifically deals with “Accounting Irregularities; poor actors in management or key service provider roles; undisclosed related party transactions; illegal/unethical business or financial reporting practices; and undisclosed regulatory, product, or financial issues” in the companies.
The company’s website states, “While we use fundamental analysis to aid in making our investment decisions, we believe that uncovering hard-to-find information from unusual sources yields the most impactful research results.” “
Hindenburg’s past targets include Lordstown Motors Corp (US), Kandi (China), Nikola Motor Company (US), Clover Health (US) and Technoglas (Colombia).
Short sellers, however, are not admired by most. The companies targeted by activists are pushing regulators to go after these short sellers because they may be involved in some form of insider trading. However, proponents say the research actually exposes fraud and does investors more good than harm.
People behind the scenes Not much is known about the company other than its 38-year-old founder, Anderson, who lived in Jerusalem, Israel, before returning to the US, where he first did consulting work with FactSet, a financial data company, and then did. at broker dealer firms in Washington DC and New York.
Prior to founding Hindenburg, Anderson worked with Harry Markopolos, who flagged Bernie Madoff’s Ponzi scheme, to investigate Platinum Partners, a hedge fund that was eventually accused of a $1 billion fraud Was.
While living in Jerusalem, Anderson volunteered for a local ambulance service.
Previous target Hindenburg is best known for going against electric truck maker Nikola Corp in September 2020 for its “alleged lies and deception” over its proposed partnership with General Motors.
Among dozens of other issues, it challenged a promotional video that showed Nikola cruising his electric truck at high speed. It said the accident was nothing more than a truck being rolled off a hill in the Utah desert, a claim the company later acknowledged and its founder and executive chairman, Trevor Milton, resigned.
Nikola, which agreed to pay USD 125 million to settle a case with the US Securities and Exchange Commission in 2021, was listed in June 2020 and its valuation peaked at USD 34 billion, but has now Its cost is USD 1.34 billion.
Hindenburg’s website lists more than a dozen companies where it has flagged alleged wrongdoing. These include Vince Finance, which disclosed Hindenburg had failed to disclose to American investors a RMB 350 million asset freeze imposed on one of its subsidiaries in China; the “zombie company” China Metal Resources Utilization which was “100 percent down” and in “serious financial trouble” with “multiple accounting irregularities”; SC Worx’s “Completely Fake” Covid-19 Testing Deal; “Massive undisclosed related party transaction including merger of USD 509 million” in HF Foods; Bloom Energy’s “billions of dollars of undisclosed off-balance sheet liabilities”; and a whistleblower report to the United States Securities and Exchange Commission (SEC) “relating to RD Legal, a hedge fund that was later charged by the commission for allegedly making false statements to its investors”.
According to its website, almost all of Hindenburg’s work has been followed by legal or regulatory action.
Activist short-selling To take a short position, investors sell borrowed stock in hopes of buying it back at a lower price later. If prices drop as expected, they take a beating. If instead the price goes up, they have to buy stock to ‘cover’ the amount borrowed.
Short sellers however are not appreciated by most. The companies targeted by activists are pushing regulators to go after these short sellers because they may be involved in some form of insider trading. Proponents, however, say the research actually exposes fraud and does investors more good than harm.
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