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Hindenburg Research LLC on its website says that the Hindenburg Research specializes in forensic financial research. It says it has experience in the investment management industry spans decades, with a historical focus on equity, derivatives and credit analysis. In layman’s terms, it looks for corruption or fraud in the business world, such as accounting irregularities and bad actors in management. Hindenburg Research was founded by Nathan Anderson in 2017 when he was a student of international business management at the University of Connecticut. He lived in Jerusalem before returning to the USA where he took a consulting job with a financial software company called FactSet and then at broker dealer firms in Washington DC and New York. The name is called ‘Hindenburg Research’ as it is based on Hindenburg tragedy when a German passenger airship that famously caught fire in the 1930s to the cry of “Oh, the humanity,” as the “epitome of a totally man-made, totally avoidable disaster.” It says it looks for similar disasters in financial markets “before they lure in more unsuspecting victims.”

Hindenburg Research prepares its investigation report on a target company by going through public records, internal corporate documents and collecting information from its employees. The report is then circulated to Hindenburg’s limited partners. Hindenburg along with its limited partners take a short position in the target company further they earn profits if the target company’s share price declines. While the research firm claims that they often look for situations where companies may have combination of:

i) Undisclosed related party transactions.

ii) Undisclosed regulatory, product or financial issues.

iii) Accounting irregularities.

iv) Irregular in management or key service provider roles.

v) Illegal or unethical business or financial reporting practices.

Nathan Anderson an activist investor and the founder of Hindenburg Research, in his interview with Max A. Cherney a technology reporter at Barron’s, stated that in general, we use some pretty traditional ways of screening for accounting red flags and the like. They also look for recidivists, or bad actors in management that have a history of stock promotion or being associated with companies or businesses that have been charged with securities fraud or securities fraud, or other kinds of white-collar crimes. People are key and they also get tips from other investors that have come across something they think is suspicious. The USA based Hindenburg Research is not a registered research firm with any market regulator.

Companies have Hindenburg targeted through its reports:

Going by the intimately available data on its site, the Hindenburg research claims to unearth “man-made disasters floating around in the market,” has released reports on around 17 companies till date since 2017. Hindenburg Research has earlier released blistering reports on companies like Eros International, Nikola, WINS Finance, China Metal Resources Utilization, SC Worx, Predictive Technology Group, SmileDirectClub and Yangtze River Port & Logistics among others. While the Indian business empire Adani Group is its rearmost target.

1. It’s maybe most notorious for a September 10, 2020 report on ‘Nikola’, a company in the electric-vehicle industry whose founder Hindenburg said made deceiving claims to ink partnerships with topmost auto companies hungry to catch up to Tesla. Afterward, the founder of the electric truck maker was convicted by a US jury for alleged fraud exertion. Incidentally, the stock, which was trading at around $35.55 in June 2020, is presently at $2.77. Nikola in late 2021 agreed to pay $125 million to settle USA Securities and Exchange Commission (USA) charges that it defrauded investors by misleading them about its products, specialized advancements, and marketable prospects.

2. In June 2020, it wrote a non-disclosure related to ‘WINS Finance’ in the US market, pointing out that a subsidiary company in China was subject to a RMB 350 million asset freeze. NASDAQ delisted the company after four months allegedly due to the non-disclosure that was highlighted by Hindenburg Research.

3. In June 2020, it again wrote about children’s television production company ‘Genius Brands International’, then trading at about $6.86 per share, would soon become a $1.50 stock due to extreme retail euphoria and pending dilution. By the ending July, just under two months latterly, shares were trading at $1.50, a weakening of nearly 80%.

4. Hindenburg wrote about ‘China Metal Resources Utilization’ in May 2020, was trading at HKD2.84 per share, calling it a “zombie company” with 100% strike. Hindenburg Research showed how the company was under severe financial distress and linked numerous accounting irregularities, including evidence of undisclosed related party transactions. By the ending June, E&Y pulled out as auditor after denying to publish an audit opinion upon identifying accounting issues and undisclosed affiliated party transactions, shares were trading at HKD0.095, a decline of further than 90%.

5. In December 2018, it wrote about ‘Yangtze River Port & Logistics’ a $2 billion market cap China-based logistics company. Hindenburg Research reported that the company’s crucial assets didn’t appear to exist, among other major anomalies. The company went on to sue Hindenburg Research, alleging defamation, so Hindenburg redoubled its efforts with numerous additional findings. Numerous independent media outlets and a law firm validated their reporting. The company was excluded from NASDAQ 6 months latterly, lost over 98% of its market cap, and now has a “caveat emptor” advising on its OTC ticker. The lawsuit against Hindenburg was subsequently dismissed.

6. Hindenburg is back again in the headlines after last week accusing Indian empire Adani Group of “a brazen stock manipulation and accounting fraud scheme.” It cited two years of research, comprehending talks with erstwhile Adani senior executives and reviews of thousands of documents. However, Adani Group has blasted the accusations, calling them “a vicious combination of picky misinformation and stale, unwarranted and discredited allegations that have been tested and rejected by highest courts in India. Gautam Adani is a 60-year old tycoon who founded the Adani Group over 30 years ago, building it into India’s largest port operator, with businesses spanning infrastructure and energy production. He became India’s richest man last year and compactly surpassed Jeff Bezos to become the world’s second wealthiest.

Hindenburg Research accused the company of ‘accounting fraud’ and ‘brazen stock manipulation’ that’s taken place over decades. Hindenburg Research stated in its report that Adani Group shares are largely overvalued, and it has taken a short position. Since the release of Hindenburg’s report last week, the group has lost further $70 billion of its stock market value, Adani own personal net worth has also plummeted by some $30 billion, according to the Bloomberg Billionaires Index, though he remains the among the affluent people on the world, with $92 billion to his name.

What Hindenburg gets out of this:

It can make money from its short position in the stocks and bonds. In its Adani report, it said that they had taken a short position in Adani Group Companies through bonds that trade in the USA and other investments that trade outside India. It has made similar short bets against other companies against which it published unflattering reports on. A ‘short trade’ is a way for someone to make money if a stock price falls. Afterward, if the price of a company’s stock or bonds falls because of the negative attention from the report Hindenburg published.

Hindenburg Research does both long as well as short. However they don’t publish their longs position, because they are pretty run-of-the-mill, with some diversification. They have some inflation hedging and things of that nature, like gold and silver. They also have some technology companies that seems are positioned for growth. Whenever anyone ask about their returns there response are we prefer not to discuss it, but they are good.

Hindenburg Research has used ‘We think’ & ‘We believe’ in his report and in its disclosure ‘we are short in shares’ in such reports. Analogous short sellers have been condemned for unfairly propelling down prices of stocks with potentially unsupported allegations. But proponents also yell them a healthy part of a stock market, keeping stock prices in check and precluding them from running too high.

Hindenburg Research or Hindenburg Tragedy

Hindenburg Research rarely sued in USA:

Contemplating, remedial and punitive action against Hindenburg Research, the short seller is not easy. It appears that only two of the 20 or more companies that Hindenburg has attacked in research reports issued since 2017 have actually sued the short seller for defamation lawsuit in the USA. As per available records, both of those lawsuits, one by real estate developer Yangtze River Port and Logistics Ltd and the other by Indian film producer Eros International PLC were tossed in 2019.

1. Yangtze River Port and Logistics Ltd sued Hindenburg, founder Nathan Anderson and a sister company, Clarity Spring Inc, for defamation in New York State Supreme Court in Manhattan, where Hindenburg Research is based. In 2019, Justice Peter Sherwood dismissed the suit, holding that Hindenburg’s allegedly defamatory statements were statements of opinion protected by the 1st Amendment. Hindenburg has trotted out a disclaimer about its short position in Yangtze shares at the beginning of its report, the judge observed. The short seller also repeatedly hedged its accusations with words like “we think” and “we believe,” Sherwood said, and noted throughout the report that its views were based on public documents that Hindenburg hyperlinked.

The Judge further stated that “the report is nothing more than a financial commentary based on the publicly available information cited, and linked to, by the report – in other words, textbook opinion.”

2. The Eros International Plc case naming Hindenburg Research, Founder Nathan Anderson and a family company, Clarity Spring Inc, is another illustration. Eros proceeding was more complicated than the Yangtze River case, but the conclusion was the same. The company alleged that several short sellers, including Clarity Spring, had conspired to drive down its share price. Eros contended that Hindenburg Research was actually created by the conspirators to serve as a persona to spread misinformation about the Indian film company.

NY State Supreme Court Justice Joel Cohen found that all of the short sellers’ assertions, in articles, reports and online posts, were protected opinion. “Many of the articles at issue here were posted on online forums that generally traffic in sharing financial opinions,” Judge Joel Cohen wrote. “A reasonable reader,” he said, “would understand that they were sharing opinions about Eros International based on news about the company.”

3. DraftKings Inc operates as a digital sports entertainment and gaming company in the USA. In June 2021, Hindenburg Research published a report addressing DraftKings, alleging that the Company’s merger with SBTech exposed DraftKings to dealings in black-market gaming.  Citing discusions with multiple former workers, a review of Securities and Exchange Commission and multinational filings, and inspection of back end framework at lawless multinational gaming websites,” Hindenburg contended that “SBTech has a long and ongoing record of operating in black markets,” estimating that 50% of SBTech’s revenue is from markets where gambling is banned.”

A class-action lawsuit was filed in July 2021, professing that DraftKings violated civil securities laws in Southern District of New York. However, the plaintiffs’ case, according to the judge, was significantly based on a report of Hindenburg Research, which according to the decision relied extensively on anonymous information and reports from ex-employees, with the plaintiffs failing to maintain sufficient testimony that the events which were contended to have taken place actually did. DraftKings Inc investors can’t lean on short-seller report to prove fraud, the Judge Paul Engelmayer of Manhattan says courts shouldn’t believe everything they read in shareholder class actions, especially when allegations are grounded on reports from short sellers. Short sellers are not unbiased narrators, the judge said in a ruling that a securities fraud class action against sports betting company DraftKings Inc.

When they publish damning revelations about publicly traded companies, the judge stated, it’s usually because they are hoping to drive down the company’s share price so they can cover their bets. The judge further said as you’ve probably guessed, dismissed the class action against DraftKings, concluding that shareholders’ case was fatally flawed because it relied almost entirely on assertions from a 2019 Hindenburg Research LLC report that pushed DraftKings Inc share price down about 4.2%.


To be sure, the guard for financial analysis is not impenetrable. So if Adani or any other company could prove factual statements in a Hindenburg report were false, they might be able to hold the short seller liable in the court of law. Still, proving falsity of fact might be a tough task in a case like this. Threatening a defamation case and winning a defamation case are worlds piecemeal.

Short-sellers argue that their work plays an important watchdog part, exposing fraud and keeping assets from getting over-inflated. Critical, adversarial research is needed because share markets in the world are a finely tuned machine, built to sell securities to the public at large, regardless of quality. The commercial world is replete with fraud, and investors have little protection and to their credit, short sellers are crucial to exposing major market frauds like Enron in 2001.

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One Comment

  1. Pravin says:

    Whatever may be the credentials of the Hindenburg, the questions it raised on Adani need to be answered. Its not only Hindenburg, these questions were already in discussion. Messenger is not important, message is.

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April 2024