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History Repeats- Does Hindenburg Wanted To Replicate The Veritas Case After A Decade, But Faced Similar Poor Fate Likeways?

A Tale of Two Research Firms: Examining the Parallel Narratives of Veritas and Hindenburg in India's Financial Landscape

In the annals of Indian financial history, two narratives emerge with striking parallels – separated by a decade but united in their dramatic impact on the nation’s corporate landscape. This sophisticated analysis examines how history appears to have repeated itself, albeit with notable variations, in the cases of Veritas Investment Research and Hindenburg Research.

Blast from the past…The Veritas Epoch.

The period of 2011-12 marked a watershed moment in Indian financial markets when Veritas, a Canadian research firm, introduced an unprecedented level of critical analysis to a market accustomed to more temperate evaluations. Their inaugural salvo, titled “Brothers in Arms – Misappropriating a Fortune,” targeting the Reliance conglomerate, heralded a new era of unvarnished corporate scrutiny.

The subsequent release of “A pie in the sky,” focusing on the Vijay Mallya-led enterprises, demonstrated remarkable prescience in predicting Kingfisher Airlines’ impending financial collapse – a prediction that stood in stark contrast to contemporary audited financial statements. This was followed by equally incisive analyses of DLF, Indiabulls, and further examination of Reliance Industries, creating significant market turbulence and corporate consternation.

Veritas Investment Research

Regulatory Response and Evolution

Under the stewardship of then-SEBI Chairman UK Sinha and Finance Minister Pranab Mukherjee, the regulatory response was measured yet transformative. The introduction of Research Analyst Regulations in December 2014 represented a significant evolution in India’s financial regulatory framework. Among other things, the regulations specifically addressed reports produced by people outside India. Regulation 4 stated: “Any person located outside India engaged in issuance of research report or research analysis in respect of securities listed or proposed to be listed on a stock exchange shall enter into an agreement with a research analyst or research entity under these regulations.”

The Hindenburg Saga: History Rhymes

A decade later, Hindenburg Research’s entry into the Indian market created similar reverberations, though in a markedly different regulatory environment. The parallel extends to the leadership structure, with Mrs. Madhabi Puri Buch as SEBI Chairperson and Mrs. Nirmala Sitharaman as Finance Minister – a notable shift from male to female leadership in these crucial positions.

Temporal Analysis and Operational Trajectories

The operational timelines of both entities in India present an interesting comparison:

– Veritas: July 2011 to December 2014 (approximately 3.5 years)

– Hindenburg: January 2023 to January 2025 (approximately 2 years)

The Hedge Fund Nexus: A Common Thread

Both cases reveal intriguing connections to hedge funds, raising questions about research independence and market manipulation. Veritas faced scrutiny over alleged communications with Altima Partners, suggesting preferential information dissemination. Similarly, Hindenburg’s alleged collaboration with Anson hedge fund, as revealed in Ontario court documents, presents striking parallels.

The “Mr A and his group the A Company”, as quoted by Mahua Moitra, faced similar heats after ‘independent reserach reports’, but with a gap of a decade.

In Veritas case, the Reliance Communications, an A of India, The Ambani’s, was dubbed “poster child of everything wrong with Corporate India, and now after a decade, it was another A, The Adanis, that became the forefront of everything that still happens wrong with corportae conglomerates!

Mukesh Ambani and Gautam Adani

However, The Regulatory Response Can Be Considered Contradicting…

The regulatory approach to these cases demonstrates a marked evolution in SEBI’s enforcement philosophy. While Veritas faced relatively mild regulatory scrutiny, culminating in a warning in June 2015, Hindenburg encountered a more robust response. Under Mrs. Buch’s leadership, SEBI demonstrated unprecedented investigative vigor, coordinating with the SEC and invoking both Research Analyst Regulations and Unfair and Fraudulent Trade Practices Regulations.

The Metamorphosis: From Corporate to Regulatory Battle

A fascinating transformation occurred in how these cases were addressed. The Veritas matter primarily remained a corporate dispute (Indiabulls versus Veritas), while the Hindenburg case evolved into a regulatory confrontation (SEBI versus Hindenburg). This shift raises intriguing questions about regulatory evolution and potential motivations. Now what do we call this? Is the regulator SEBI becoming more cautious, or is this aggressiveness because the head of the regulator had vested interests with the ‘alleged’ Adani

At the end, both faced the similar fate, Hindenburg getting the harder pill…

The FIR of Indiabulls against Veritas kicked it out of the Indian Market. The Hindenburg also saw the similar fate, even a harsher one, by shutting down its operations for ever.

Hence, if we consider that Hindenburg wanted to repeat the Veritas saga, of knocking horns with Indian giants, then it should have calculated about the similar fate that it was engulfing into. 

While reports have pointed out how Veritas’ call was right on Kingfisher and DLF, ironically, two years after the ‘sell report’ on Indiabulls, the company’s stocks continued to trade at high levels. The share price of Indiabulls Housing, the flagship, had gone up from Rs 250 to Rs 468. The Hindenburg report against Adani led to a political storm in India. But as months passed, the Supreme Court dismissed a petition from litigators based on it while the Adani Group recovered lost ground with strong operating performance and stock recovering most of the losses.

Reasons Why India Is One Of The Most Powerful Countries In The World

Perhaps, in this case, we can definitely say India as a ‘vishwa-guru’ to be deemed as powerful enough that no other outside force can shake Indian conglomerates.

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