How The Adani Fraud Actually Works (Allegedly)

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Edited By: Andrew Gonzales

Music Courtesy of: Epidemic Sound

Select Footage Courtesy of: Getty Images

All materials in these videos are for educational purposes only and fall within the guidelines of fair use. No copyright infringement intended. This video does not provide investment or financial advice of any kind.

#finance #investing #adani

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Hindenburg research is an investment research firm which specialises in short selling using a very simple four step process.

Step 1, find a company with something going wrong that isn’t yet public knowledge, like a serious fault in their growth model, a significant market threat, or just plain old systemic fraud, as is the case with this Adani situation.

Step 2, short the companies stock.

Step 3, make a public announcement in the firm of a research paper accompanied by a big marketing campaign to expose the problems with the company so that other investors also short sell the business which will push the price down.

Step 4, exit the short positions at the new low price with a healthy profit.

It’s a simple process that has made the appropriately named Hindenburg research and other investment firms using a similar strategy have made lots of money be exposing corporate frauds before.

The great thing about this strategy for the short selling research firm is that even if the underlying problems with the company turn out to not be true, just the market panic caused by a widely circulated accusation of corporate fraud can be enough to push the stock price down for long enough to allow the firm to cash out their short position at a profit.

If the allegations do end up being overblown, then the short sellers that followed the lead of the initial short selling research firm can end up burnt as the stock rallies back to its original price.

Bill Ackman the Manager of the hedge fund Pershing Square Capital put a lot of investors in this position with his failed short play on the multi-level marketing company Herbalife. Ackman accused the company of being a fraudulent pyramid scheme after taking on a major short position combined with a marketing campaign that even included a documentary, Betting On Zero.

The short failed to play out as regulars didn’t file any charges against the company and it continues to operate to this day with a stock price even higher than it was before Ackmans short sale.

The failed short play hurt Ackmans reputation meaning other short sellers will be less likely to follow him into similar positions in the future making it harder for him to profit off this four-step plan in the future.

A good reputation for digging up credible problems are very important for making this investment play work, so how is Hindenburg’s track record?

Hindenburg’s last big short play was against Nikola motors and their CEO Trevor Milton. After their report was released to the investing public, Nikolas stock price fell 40% and an investigation by the SEC was opened into Milton which eventually resulted in a conviction for wire and securities fraud.

Since the paper was published in September of 2020 Nikola stock is down over 90%, so when the same investment firm made similar accusations against one of the largest conglomerates in India, it understandably drew some attention.

The seven publicly listed companies in the Adani group are now down over 50% from the record high prices they were trading at before Hindenburg’s report was made public. Investors are now taking sides because there is a lot of money to be made no matter what happens from now on.

If it turns out that the short thesis presented by Hindenburg research is true, then the stocks could fall even further making a lot of money for short sellers following Hindenburg’s lead.

If the report turns out to baseless FUD coming from an investment firm with a financial conflict of interest against the Adani group or if Indian authorities do not prosecute the Adani group for the alleged crimes, then the stocks could rally back to their previous trading highs leaving short sellers with a potential 100% loss on their positions.

For everybody else on the side lines it is going to be fun to watch, so it’s time to learn How Money Works to find out how the Adani fraud actually worked to create so much excess value in the stock’s price.

[SD....]

I'd say that was an oversimplification of what happened with Herbalife. Carl Icahn started using the stock as a way of getting back at Ackman. Plus, it was quite surprising to many that regulators didn't step in. I think most informed people found the thesis behind the Herbalife short to be quite strong.

[RailTV]

BJP will never prosecute Adani, adani literally pays 80% of BJPs fund

[knipfer]

There are multiple people coming to the comments to back up Adani despite it being impossible to actually have watched the entirety of the video based on comment vs publish time. I don’t know if it’s bots or people hired to do damage control, but it’s annoying.

[fecardona]

OmegaPro was a smaller scam in Latin America, but an equal scam in process and structure nonetheless.

[ChocolateMilkCultLeader]

He's involved with the government. That's a huge factor in this situation

[Talosbug]

It’s so sad that these videos keep coming so rapid fire that they become so non-shocking. Corruption is coming out of the woodworks

[smallpotatoe]

So, in an interview, Adani said he has the lowest bids in any project he's given, one way to afford those low bids is having little to none profit margins on the projects, but purely to keep a positive sentiment on its stocks.
How does he afford that?
Simple, have majority of approx. 85% shareholding publicly (and via offshore companies) in most of its companies. Which then makes it a low float stock. Pledge those shares, and pump it up from the lended money. And the thing about such a low float is, for example, if you buy the stock by 1 billion, the stock value could go up by 3 billion. So, now u have a bigger value, which u then pledge and continue this never ending process. It's pretty similar to a ponzi scheme.

[johnl.]

Another reason company stock was expensive was because they supposedly has top political backing so Indian investors thought no risk of company going bad.

[nerdlingeeksly]

I remember you or someone else telling me about this guy; when I heard about him I thought to myself "There's no way he got that rich that quick and diversified his holdings this much through legal means, he either had help from corrupt individuals doing shady deals or was lying to a lot of investors."

[battsy]

In reality companies like this get to where they are by being hand in glove with politicians And those who make laws so nothing will happen

[mintrelsmith]

In India, Adani didn't have any social reputation even before Hindenburg report. ☺

[hibudy]

you can't even imagine how well connected politically this family is, many people in India thinks he is the real prime minister not Modi. After Modi came in power in 2014 he just propped up to become India's richest mainly through uncontested state assets aquisitions, or pressuring under businessman to sell assets using state power and obviously tax evasion and frauds.

[themoodyteam]

I’ll call it now. The Indian government will turn the blindest of blind eyes 👀

[sagarj]

This is half the story, well 10%, the real story is the Nexus between Modi and Adani. Modi literally offered ports, airports, cement companies, power plants, coals tenders, logitcs, media, telecom etc etc for peanuts. Govt agencies raid companies and Adani buys them soon after, that's the story with almost all the acquisitions.

[vktdx]

We've been trying to stop Adani here in Queensland for years. Wonder what our state government thinks now of their great jobs idea.

[herpderp]

The main reason why authorities in India might look the other way is because Adani has had close ties with the current premier of India

[funtechu]

Ackman was actually right about HLF, but unfortunately regulators didn't care.

[Vij]

Most of the investors were suspected about this group, Hindenburg report has just strengthened thier doubts. So investors belived Hindenburg report.

[TheRock.]

There was nothing in the Hindenburg report that wasn't already publicly known. There is no large company in the world that doesn't have entities in tax heavens.

[CanaldoIllan]

I live in Brazil, it's eering the similarities with India's economy. It's truly horrifying what a corrupt government can do to a country within capitalism. The same people/companies run Brazil for decades -- not talking about Lula, every politician and political party is just a gear in a much more complex system. They bend the law however they like to enrich themselves (and their associates) at the cost of the quality of our lives.