Adani Group’s legal woes if it sues Hindenburg in U.S.

By Mayank Chhaya-

Mayank Chayya

Hindenburg Research, the findings of whose two-year-long investigation into the alleged fraudulent practices by the Adani Group have dropped a bombshell, is baiting the Indian corporate giant to file a lawsuit in the U.S. where the demand for a legal discovery process could be potentially devastating for the group.

In a tweet after making public its bombshell investigation that wiped out $47 billion in the Adani Group’s market value in a single day today, Hindenburg said it welcomed the Indian company’s threat of suing the New York-based activist fund. “If Adani is serious, it should also file suit in the U.S. where we operate. We have a long list of documents we would demand in a legal discovery process,” the fund said.

Given the often opaque nature of many Indian corporate giants, a discovery process could be deeply problematic since it would bring to light details that they do not want known publicly. The discovery process requires both parties at dispute to exchange information about the witnesses and evidence that they plan to present during a trial.

It enables parties to know beforehand what evidence will be presented during the trial. Hindenburg Research realizes that this practice in the U.S. could create serious complications for the Adani Group were they to file suit here.

In a veritable stock bloodbath, five of the seven listed Adani Group companies ended Friday between 16% to 20% lower, according to reports from Mumbai. The fact that the drops were much steeper than on the day the New York short seller released the report accusing the Adani Group as having pulled “the largest con in corporate history” indicates that the company’s problems could be much more serious in the near and long-term.

“Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades,” Hindenburg said on January 25.

“Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period,” it said.

The findings have set off a firestorm with political implications in India especially because Gautam Adani is considered particularly close to Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP).

Hindenburg’s report is exhaustive and raises so many questions about the operating style of the Adani Group under Gautam Adani that answers to most of them may never be known without an extensive investigation by Indian authorities.

On their part, the Adani Group have threatened to seek “remedial and punitive” action against Hindenburg.

“Clearly, the report and its unsubstantiated contents were designed to have a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by their own admission, is positioned to benefit from a slide in Adani shares,” Adani Group’s legal chief Jatin Jalundhwala was quoted as saying in a statement yesterday.

It described the Hindenburg report as “intentional and reckless attempt” to mislead investors as well the general public and sabotage the company’s public offering.

Incidentally, the New York activist fund has named itself after the famous 1937 airship disaster because it looks for stocks that might crash.

It is not clear whether the Adani Group will bite the bait and sue Hindenburg in the U.S. where it will incur huge legal fees in part triggered by the demand for a legal discovery process.

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