Six entities under lens for suspicious trading in Adani shares: SC panel

The panel of experts appointed by the Supreme Court said six entities, including four foreign investors (FPIs), are under the lens for suspicious trading in Adani Group shares ahead of the release of the damning Hindenburg Report.

The 178-page report said there was a build-up of short positions in Adani’s own shares before the release of the Hindenburg Report on Jan. 24, and large profits were booked afterward as shares collapsed.

A “short” position is generally selling a stock one does not own.

Investors who short sell believe that the share price will decrease in value. If the price goes down, they can buy the stock at a lower price and make a profit.

The Hindenburg Report alleged that the Adani empire was “the largest con in corporate history” involved in “a scheme of stock manipulation and accounting fraud”.

Shares of the Adani Group, which denied all allegations and likened the US investment firm’s report to an attack on India, sank after the publication of the Hindenburg Report on January 24.

As the report sparked a political row and petitions were filed for an investigation into the empire led by billionaire Gautam Adani, the Supreme Court on March 2 set up a panel of experts to investigate whether there was any failure to disclose transactions with related parties and whether stock prices were manipulated.

The panel of experts chaired by former Supreme Court Justice AM Sapre found no organizational failure during the sharp rise in prices of Adani Group companies between March 2000 and December 2022 and their dramatic collapse after January 24.

“While there was no negative observation regarding numerical buyers in the cash sector, suspicious trading was observed by six entities. These are four intellectual property organizations, one legal person and one individual,” the report said.

The report did not mention any of the six.

“The trading pattern here is suspicious due to the accumulation of short positions by these entities in Scripps Adani prior to the Hindenburg Report, and the large profits they made by squaring their short positions after the publication of the Hindenburg Report on January 24, 2023.”

A detailed investigation is conducted regarding the trading between the six entities.

“These issues are under investigation, and the factual results at this stage, because they are visible in nature, the committee does not delve into the details and names of these people, or comment on the quality of the apparent evidence.

“The committee wishes to ensure that the position of the parties concerned, including SEBI, is not jeopardized in either direction when investigations are pending,” the report said.

The Financial Crimes Agency – Law Enforcement Directorate (ED) “found intelligence about coordinated and possible malfeasance selling by certain parties just prior to publication of the Hindenburg Report, and this could lead to credible charges of destabilizing Indian markets,” Sebi said, quoting Response from ED.

The report said an analysis of the trading of shares of Adani Enterprises Ltd (AEL), the leader in the apple group to the port, in four corrections between March 1, 2020 and December 31, 2022, a month before the publication of the Hindenburg Report and the collapse of Adani. Stocks showed, state-owned LIC was the biggest loser as it sold 50,000 shares of the company when prices were hovering around Rs 300 and bought 4.8 crore shares when prices were between Rs 1,031 and Rs 3,859.

After a detailed examination of the price movement of Adani shares and their buying and selling by various entities, the committee found no evidence of share price manipulation by companies associated with the Adani Group.

Trading in AEL shares was analyzed over four periods – March 1, 2020 to August 31, 2020 (Patch-1), September 1, 2020 to September 30, 2020 (Patch-2), October 1, 2020 to March 31, 2021 (Patch-3) and from 1 April 2021 to 31 December 2022 (Patch-4).

The Securities and Exchange Board of India (SEBI), the stock market regulator, told the committee that “while the price of AEL shares has risen significantly, there has been no clear pattern of manipulative contribution to the price hike which can be attributed to any single entity or group of concentrated entities.”