Indian business tycoon Gautam Adani came into 2023 with a fortune of over $100 billion, rendering him the richest man in Asia and one of the richest people in the world. His corporate conglomerate, the Adani Group, had seen a meteoric rise, with enterprises in energy, utilities, mining, and logistics, among other areas. Now, Adani has seen billions of dollars wiped from his company’s value and his own net worth after a United States investment firm accused the Adani Group of stock manipulation and fraud. The saga has implications for Adani, his companies, and, potentially, India.

On January 24, New York-based Hindenburg Research published a scathing, over 100-page report making the case that Adani is “pulling the largest con in corporate history.” In it, Hindenburg, which was founded by activist short seller Nathan Anderson in 2017, alleges Adani Group has engaged in “brazen accounting fraud, stock manipulation, and money laundering” over the course of decades “with the help of enablers in government and a cottage industry of international companies that facilitate these activities.” It takes aim at seven companies listed by Adani that have seen their stock prices surge over the past three years. Hindenburg claims that the companies are saddled with debt and, even without the evidence of misdeeds presented after Hindenburg’s two-year investigation, 85 percent overvalued.

Adani reacted to the report with a 413-page response of its own, saying the company was “shocked and deeply disturbed” by the allegations launched by Hindenburg, who it called the “Madoffs of Manhattan,” referring to the late financier and fraudster Bernie Madoff. “The document is a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive,” the company said, calling it “tremendously concerning” that an investor sitting on another continent could have caused “serious and unprecedented adverse impact” on investors. Adani said Hindenburg’s report takes aim at India as well. “This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” the company said.

Despite Adani’s pushback efforts, Hindenburg’s accusations have clearly rattled investors. Shares of Adani’s flagship firm, Adani Enterprises, have plunged, as have the stock prices of other Adani companies. Adani Enterprises managed to raise funds for a $2.5 billion share sale in the days following the Hindenburg report only to later call the sale off amid all the scrutiny. Credit Suisse has reportedly stopped accepting Adani bonds as collateral, and credit ratings agency S&P has downgraded its credit outlook on two of Adani’s companies. Adani and his family have said they will prepay a $1.1 billion loan backed by his companies’ shares in an effort to boost confidence.

Much of Adani’s wealth is tied up in his companies, and as their prices have fallen, so has his net worth. According to Bloomberg, he is now worth $59 billion, meaning his wealth has been cut in half.

Adani has become one of the “poster children” for India’s economic growth prowess in recent years, said Milan Vaishnav, director and senior fellow of the South Asia program at the Carnegie Endowment for International Peace, explaining that the growth of Adani’s companies and his own personal wealth has reflected India’s. “The fact that his company could lose $100 billion in market value in a week and his net worth could decline by $50 billion is a big deal,” he said. “The government has decided to invest in a handful of national champions as they’ve rediscovered, as many countries have, industrial policy. They’ve decided that rather than allowing purely multinational and Fortune 500 companies to come in and build India’s manufacturing base, they would like domestic, indigenous companies to take charge.”

It’s not a good sign that one of those companies chosen to take charge is in trouble.

Adani is close to Indian Prime Minister Narendra Modi; the pair are from the same state, and their rises have coincided. When Modi was elected prime minister, he flew to New Delhi on an Adani plane. Both Adani and Modi are committed to India’s economic growth, and there’s a widespread perception that Adani and his businesses have benefited from his relationship with the leader.

“They’re very closely associated with each other, and it’s notable that Adani’s main business strategy has revolved around key sectors that are seen as priorities for the Modi government,” said Michael Kugelman, deputy director of the Asia program and senior associate for South Asia at the Wilson Center think tank, pointing to areas such as infrastructure and clean energy. Adani is a huge name in India in both the financial and political spheres, and Hindenburg’s attack on him has important political and economic implications. “His corporation and all of the associated companies, they’re huge, and they’re everywhere, and he has interests and takes in so many different parts of the economy,” Kugelman said.

In India, members of the country’s main opposition party have launched protests over the matter, and parliament was adjourned for multiple days. What comes next in this drama remains to be seen.

Who is Gautam Adani and what does he do?

If you are just catching up, Bloomberg has a nice, quick rundown on the basic ins and outs of Adani and the Adani Group. Adani, 60, is from Gujarat in western India. He dropped out of school and first worked as a diamond sorter in Mumbai before moving back and getting into global trading, first importing polyvinyl chloride, PVC, as part of his brother’s plastics business. He started Adani Exports, which would eventually become Adani Enterprises, in 1988.

Adani is sometimes referred to as “India’s Rockefeller,” Kugelman said, but he thinks that assessment is off. “What makes him compelling in the eyes of many Indians is that he doesn’t come from high levels of privilege, and this makes him similar to Modi,” he said.

Adani Group is now a half a dozen companies in areas such as energy, transportation, and mining; it also manages multiple ports and airports. He and members of his family run the conglomerate. As the New York Times noted in a profile of Adani in 2022, much of his fortune derives from mining, shipping, and burning coal, but he’s also pledged billions of dollars to help develop renewable energy in India. “India has to move from developing to developed, and energy is like a food,” Adani told the Times.

Shares of Adani’s companies have seen an astronomical rise over the past couple of years — that along with Adani’s overall rise has raised some eyebrows, even before Hindenburg’s report. Much of the trading activity in Adani Enterprises has been traced to holding companies in tax havens, spurring speculation there’s some sort of manipulation going on. As the Times notes, Adani was investigated over tax issues related to coal imports but was cleared; he has also been linked to an Indian stock market manipulation scheme. Adani’s debt load has scared investors, too.

Indranil Mukherjee/AFP via Getty Images

“There’s naturally going to be scrutiny of a corporate titan when he becomes so wealthy so quickly, and his company became so huge,” Kugelman said. “What we saw with the Hindenburg report, it’s the equivalent of going from 5 to 500 miles per hour very quickly, in the sense that this is a company that was doing a thing for a long time, attracted a bit of concern and criticism here and there, but then all of a sudden, you’ve got this incredibly comprehensive, detailed report laying out these remarkably large-scale examples of financial corruption and malfeasance.”

“In India, they were sort of an open secret, but it’s telling that this report had to come from the outside,” Vaishnav said. “Many people were whispering about this in the corridors but didn’t actually want to go on record for fear of what it might mean for their future.”

Short sellers are in the business of making a negative case. Is Hindenburg’s case right?

Hindenburg Research did not undertake this two-year investigation of the Adani Group because it just really cares that the public is informed about possible misdeeds by an Indian conglomerate — it is doing so to make money. Anderson, its founder, is a short seller, meaning he stands to make money if the price of Adani Group company shares and bonds fall. And he’s making those prices fall with the report.

“From his point of view, he’s done what he wanted to do. Whether that’s right or wrong, time will tell,” said RN Bhaskar, a journalist who wrote a biography of Adani. “The intent was to destroy.”

When you short a company, you borrow shares of it, sell them, and if their price goes down, you buy them back at that lower price, return them to the original owner, and keep the difference. If its price goes up, you run into trouble. Sometimes, shorts are successful — see the movie, The Big Short. Sometimes, they are not — see what happened to the people betting against GameStop, or billionaire investor Bill Ackman failing to take down Herbalife after spending years making the case it was a pyramid scheme.

Big-name short sellers like Hindenburg often build up positions quietly and then lay out their case against the company when they’re ready to go for the jugular. One interesting aside here, Reuters reported, is that the mechanics of the actual trade the investment firm is making aren’t super clear because securities rules in India make it difficult to be secretive about building up short positions.

The attack Hindenburg is launching here is pretty staggering. The report includes that Gautam Adani’s brother, Vinod Adani, and close associates control more than three dozen shell entities in Mauritius and also identifies other entities that are “surreptitiously controlled” by Vinod Adani in the UAE, Singapore, and multiple Caribbean islands. Many of those entities, the report alleges, “have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence” but have moved billions of dollars into Adani’s companies. It alleges that the entities are used for stock manipulation and money laundering “in order to maintain the appearance of financial health and solvency.”

Hindenburg’s report also says that the Adani Group has been the focus of four major government fraud investigations and that its “obvious accounting irregularities and sketchy dealings seem to be enabled by virtually non-existent financial controls.” In other words, Hindenburg believes no one’s looking under the hood. The report points to the company’s debt, how tightly controlled it is by the family, and its high overall valuation as points of concern, among other issues.

Anderson told the Times for a 2021 profile that his passion is to “find scams,” and he’s run successful short campaigns in the past, including against electric vehicle companies Nikola and Lordstown Motors. “There are just so many outrageous companies,” Anderson told the Times. “Some of these companies we have looked at, they don’t have any revenues at all.”

How the Adani Group weathers the storm Hindenburg has brought upon it in the long term is still unclear, but in the short term, at the very least, many of its companies’ share prices have plunged, indicating that investors seem to be heeding Hindenburg’s warning. When I reached out to Andrew Left, an activist short seller and the founder of Citron Research, to ask if he’d discuss the matter with me in an interview, he simply responded, “Nothing to be said. It is all in the stock price.”

This is not great for Adani or for India

India’s government has really not weighed in much on the Adani drama, saying the country’s banking industry remains stable and treating this as a markets issue. Indian regulators are taking a look at what’s going on. It’s not clear yet what sort of impact this will have, in totality, for India, but the picture isn’t a great one.

“This is one of India’s largest companies, this is one of the world’s richest individuals, and if the company tanks, it will have all kinds of negative ripple effects for the Indian economy, including the fact that it would really damage, I think, foreign investor confidence,” Vaishnav said. There haven’t been a lot of safe havens for people to invest in emerging markets recently — Russia is a no-go, Brazil just had big protests, China makes investors nervous.

India has seemed like a relatively safe bet, and an implosion of a conglomerate like Adani’s would “dramatically raise” the country’s risk profile, Vaishnav said. “We’ve talked about India’s rise as something that’s off into the future, and many people are like, ‘Maybe it’s here, maybe that’s what this represents.’ This story has the potential to raise serious questions about at least one pillar of that, which is how robust is this economic story if this one report can do this to one of the biggest national firms to exist?” he said.

India is slated to host the G20 summit later this year. Bloomberg reported that Amitabh Kant, who is steering India’s preparation for the G20, in an interview on Monday said the scrutiny on Adani is a lesson for everyone that “we should believe in top class governance and we should open our books and records to everyone in the world.”

Vaishnav noted that the Adani Group has a major role in India’s infrastructure buildout, “so if they disappear or are badly diminished, that turns into a nation-building dilemma for India, not simply a corporate governance irritant.”

Bhaskar, the journalist and Adani biographer, said India has seen big companies face major challenges before, though not necessarily of this magnitude. “This time, India’s larger, Adani’s larger, the markets are bigger, the crash is bigger,” he said. “I know that India has seen such turbulence before, and this too shall pass.” It’s a sentiment others in India have echoed as well.

Hindenburg’s report has certainly made investors and markets nervous. The broader story of what this will mean long term still isn’t written.