Hindenburg Research | With an eye for fraud

The short seller at the centre of the storm over its report on the Adani Group’s corporate practices is a small firm ‘specialising in forensic financial research’

Updated - January 29, 2023 05:58 pm IST

Published - January 29, 2023 01:23 am IST

Nathan ‘Nate’ Anderson founded Hindenburg Research in 2017.

Nathan ‘Nate’ Anderson founded Hindenburg Research in 2017. | Photo Credit: Getty Images

Short sellers are as old as corporate stocks themselves.

The first known instance of short selling dates back to the early 17th century and involved stock in the Dutch East India Company, which is widely considered the first-ever joint-stock company. According to Ludwijk Petram, an economist and historian from the Netherlands who was featured on U.S.-based National Public Radio’s ‘Planet Money’ show in 2015, Isaac Le Maire, a disgruntled former director of the Dutch East India Company, sought to wreak revenge on the company for being expelled by betting that the company’s stock price would fall. To this end, he is said to have started spreading rumours that were aimed at pushing the stock’s price down.

The company is reported to have sought a ban on short selling, citing the economic injury it contended was being caused to the wider public, and succeeded in obtaining both a partial ban on short selling and a prohibition on Le Maire accessing any of his shares, thus thwarting the short seller’s plans.

Over the centuries, short sellers were viewed with suspicion by the establishments of the day, with France’s Napoleon Bonaparte outlawing short selling and considering the activity treasonous enough to warrant the imprisonment of short sellers. More recently, in the mid 1990s, a Malaysian Finance Minister mooted that short sellers be subject to public caning. And though the idea didn’t become law, the country made it illegal to short sell certain select companies.

For all the opprobrium, short sellers have often enough served a valuable socio-economic function by helping expose financial irregularities in corporations big and small that have raised capital from the public. Given that they take the risk of a substantial financial loss in case their bet that a company’s share value is going to decline over a certain time period, short sellers invariably spend a lot of time and effort researching the company they are looking to short.

From predicting the fall of the once powerful energy provider Enron Corporation, to accurately foreseeing the financial meltdown associated with the U.S. subprime mortgage crisis in 2007, short sellers have earned themselves a reputation of serving as early warning systems of corporate and market malfeasance.

Hindenburg Research, a small firm founded by Nathan ‘Nate’ Anderson (in picture) in 2017 that operates out of the Upper West Side in New York City, is a short seller that has built its reputation over its focus on forensic financial research. Over the space of just two months in 2017, Hindenburg published more than four articles on four different Nasdaq-listed companies, including a bitcoin miner and a biotech firm that subsequently resulted in charges being filed by the U.S. Securities and Exchange Commission (SEC) against key officials at these firms.

Chinese company

The following year, Hindenburg published its first major article on a then $2 billion market capitalised Chinese logistics provider, Yangtze River Port & Logistics. Hindenburg’s investigation into the Nasdaq-listed firm revealed that the company’s key asset didn’t appear to exist.

While the China-based firm sued the short seller for defamation, Hindenburg says on its website that “multiple independent media outlets and a law firm corroborated our reporting”. Yangtze River Port, which lost over 98% of its market cap, was subsequently delisted from the Nasdaq and its lawsuit against the short seller was dismissed.

However, it was in 2020, that the short seller came into its own, taking on at least seven companies in the space of an equal number of months.

Hindenburg’s September 2020 report on electric vehicle maker Nikola Corp. titled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America” was its most significant investigation until its latest report on the Adani Group.

With the help of whistle-blowers and former employees, the short seller established that Nikola had resorted to several falsifications including a promotional video for its Nikola One semi [truck trailer] that was “nothing more than the truck being rolled down a hill in the Utah desert”. The report led to the resignation of Nikola’s founder and executive chairman Trevor Milton, with a jury last October convicting Mr. Milton on charges of having defrauded investors.

Howsoever the denouement in the Adani case may end up, Hindenburg’s latest salvo has shown that the firm and its founder Mr. Anderson have the appetite to take on the rich and the powerful.

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