noAmin hedge Funds are easy. Painkiller references to the natural world (mountains, stones, rivers, or points) usually do just fine. Failing that, invoke ancient Greece. Baptizing a shocking and awe-inspiring short-selling establishment requires a lot more creativity. Hindenburg Research, founded by Nathan Anderson in 2017 and named after the doomed hydrogen-filled German airship, seeks to find looming corporate disaster and then lifts the torch. The firm, which publishes research reports on its website, typically profits when the target company’s share price plummets.
The Hindenburg Report accused various manners and serious hoaxes, from insider trading to accounting alchemy. Its latest publication catapulted its creative moniker into global headlines. On Jan. 24 it accused the Indian conglomerate Adani Group, run by one of the world’s richest tycoons, of stock manipulation and fraud. Adani Group said the allegations were baseless and issued a lengthy rebuttal.
Mr. Anderson’s actions moved quickly. In the past two years, it has published 19 surveys. Most are small fish compared to Adani. The company goes public through a special purpose acquisition company (SPACs), a controversial corporate form that has become popular during the pandemic public frenzy, has proven to be a rich hunting ground.Hindenburg gained notoriety in 2020 when it accused Nikola, a startup that planned to build a battery-powered truck that passed the SPAC, rolling a limp vehicle down a hill in a misleading promotional video. Nikola’s founders were later convicted in New York federal court of defrauding investors.
The stock prices of Hindenburg’s targets often fell rapidly, often by more than 10%. So far, the total market value of Adani Group’s listed companies has shrunk by about half. Shares of Nikola are down more than 90%. Even so, short selling is notoriously difficult to profit from, as the potential gains from short selling are capped and losses are not when shares rise rather than fall. High-profile short seller Muddy Waters’ Carson Block questioned whether the pressure was worth it. US investor Bill Ackman, who has tweeted his support for Hindenburg’s pursuit of Adani, announced last year that he was exiting activist short selling.
Few believed that trying to expose fraud would do the market no good. That hasn’t dispelled the cloud of doubt surrounding short sellers and their reliability. Mr Anderson acknowledged that Hindenburg worked with outside “investors” but declined to identify them. For some, such bedfellows are necessary; wealthy individuals or funds can provide financial support, tips, and research without the public scrutiny of shorting. For others, opaque relationships open the door to conflicts of interest. Regulators in the US may soon mandate greater transparency. In the meantime, Hindenburg will continue to search for potential flammable markers. ■
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