Hindenburg Research: Unveiling Corporate Malfeasance or Market Manipulation?

Publications by Hindenburg Research have already led to a £47 billion reduction in the fortune of one of the world's richest individuals and undermined the authority of a legend in the American stock market. Who is behind the company, which in its latest report targets the Polish firm LPP, known for brands such as Reserved, Mohito, and Sinsay?

On Friday, Hindenburg Research published a report about LPP. American researchers allege that goods from the Polish giant were still being sold in Russia, despite the firm's declared withdrawal from this market. According to Hindenburg, the sale of LPP's Russian business after Vladimir Putin's army attacked Ukraine might have been in name only. Following the report, LPP shares dropped on Friday by around 35 percent.

LPP, in its initial response to press reports, did not directly address the allegations.

The report prepared by Hindenburg Research is part of an organized disinformation attack planned for five months, aiming to reduce the share price of the LPP Group. We previously informed the Ministry of Foreign Affairs and the National Revenue Administration about the case. As we've discovered, we're not the first company to catch the intelligence service's interest. Previously, a similar approach targeted Adani by Hindenburg. We also know the intelligence operates on behalf of third parties. It's possible that such activities might be an attempt to gain influence over the LPP company - we read in the statement.

In a second statement, issued later, LPP refutes the claims about the nominal sale of the Russian business raised by the American firm. The company confirms that it no longer owns the Russian business, and in May 2022, it sold 100 percent of the shares in RE TRADING OOO, verified by a legally binding decision of a Russian court. LPP assures it does not engage in any commercial activities within the Russian Federation and does not oversee the current owners and directors of the company that bought RE TRADING OOO. The company stresses it is not operating in the Russian market.

LPP acknowledges that the share sale agreement included a transition period lasting until 2026, during which the buyer would gradually assume full independence over the business's operations. The company is reviewing the material from Hindenburg but preliminarily states that it contains false information about them.

In a third statement, issued in the afternoon, LPP announced it would take the matter to the prosecutor's office.

The report on the Polish clothing giant is not the first of its kind by Hindenburg Research. The New York-based company is involved in both financial analysis and investment.

Hindenburg Research specializes in conducting thorough investigations and publishing incriminating reports, accusing major companies, often listed on the stock market, of various kinds of accounting fraud, stock manipulation, concealing information, and other irregularities. Crucially, Hindenburg Research profits from engaging in stock investments, betting on so-called short positions (shorts) on the stocks of the companies it reports on. This practice benefits the company financially when the stock prices of these companies decrease following the unveiling of allegations. This approach has led to accusations of bias and conflict of interest against them.

Nathan Anderson founded the company in 2017. With a background in international business and a stint in finance at FactSet Research Systems Inc., he graduated in international trade from the University of Connecticut. Notably, he once worked as an ambulance driver in Israel, which he says taught him to perform under pressure.

The decision to focus on researching potential company irregularities was influenced by Harry Markopolos, an investigator instrumental in exposing Bernie Madoff's infamous financial pyramid.

The company's choice of name, Hindenburg, inspired by the 1937 airship disaster, reflects its mission to uncover "man-made disasters" in the financial markets.

Hindenburg Research gained significant attention after publishing a detailed report in 2020 on Nikola, branded as the "Tesla of the trucking industry." The report exposed Nikola's systematic deception of investors by overstating the capabilities of its prototype electric vehicles and fictitious orders from customers.

In the publicly displayed prototype of Nikola's truck, it lacked, among other things, an engine and a hydrogen fuel unit—key components said to give it an edge over competitors. Nikola's founder, Trevor Milton, refuted these claims, insisting the prototype was operational and the engine was omitted "for safety reasons".

Hindenburg's allegations led to Nikola's bankruptcy, with Milton found guilty by a New York court of deceiving investors on the stock market among other charges. Previously, the startup had announced plans to sue the American firm.

Another significant and widely discussed report by Hindenburg was on the Indian giant Adani Group at the start of 2023. After two years of investigation, Hindenburg accused the conglomerate, led by one of the world's wealthiest individuals, of significant accounting fraud over many years. Using hundreds of shell companies in tax havens to divert funds, falsifying trade documents, and systematically manipulating stock prices were among the allegations.

According to Hindenburg, these actions were aimed at artificially inflating the value of the company and the wealth of its founder, Gautam Adani, then one of the world's wealthiest and the richest in Asia.

Following the report, Adani Group shares plummeted, erasing about £47 billion from Adani's fortune. These events have been labeled by Hindenburg Research as "the largest corporate fraud in history". However, Adani Group dismissed the report as a "malicious mix of selective misinformation and long-discredited allegations".

Though they threatened legal action, Adani Group has not yet followed through. The founder of Hindenburg claimed his company had a list of documents they'd demand Adani Group to disclose if sued. An ongoing investigation by SEBI, India's securities and exchange commission, into Hindenburg's allegations against Adani continues.

Recently, Hindenburg Research also scrutinized the legendary American investor Carl Icahn and his funds. The company accused them of artificially inflating stock prices, concealing crucial information, and systematically misleading investors about the real financial situation of the funds.

As a result, the fortune of 87-year-old Icahn, one of the market's most aggressive investors, dwindled by around £12 billion over a few months. This was one of the most significant wealth losses among billionaires in the past year. Icahn told Bloomberg that Hindenburg's accusations "give him a headache," although he tries not to dwell on them.

More publications, including a report on the company Temenos and alleged accounting irregularities and "secret purchases of its software", have followed.

What are the consequences of Hindenburg's reports? For Milton and Nikola, the document release triggered a series of events culminating in Milton's conviction. While the investigation into Adani by local regulators continues, India's Supreme Court has ruled no special team is needed for further probe.

According to reports from February 2023 by Reuters, only two out of roughly twenty companies targeted by Hindenburg since 2017 have decided to sue for defamation. Both lawsuits—one by Chinese developer Yangtze River Port and Logistics, the other by Bollywood producer Eros International—were dismissed in 2019.

The lawsuits were dismissed as Hindenburg's reports were considered speculative and based on publicly available information, thus regarded as "opinion about the company". Neither plaintiff could prove specific falsehoods in Hindenburg's reports.