Kotak Mahindra Bank is scrutinising potential legal action against Kingdon Capital amidst allegations that the firm misled the bank regarding its ties to Hindenburg Research. Sources familiar with the matter revealed that Kotak is assessing whether Kingdon’s declarations were misleading, particularly concerning its trades in Adani group entities.
‘Based on our evaluation, Kotak will decide on pursuing legal recourse against Kingdon,’ one source disclosed. The scrutiny comes following a show-cause notice from India’s Securities and Exchange Board (Sebi) to Kotak, questioning the bank’s facilitation of a Foreign Portfolio Investor (FPI) license for Kingdon Capital.
Kingdon Capital purported that its transactions with Adani were solely ‘principal trades,’ permissible under current regulations for offshore funds. However, a Sebi investigation disclosed a profit-sharing arrangement between Kingdon and Hindenburg Research, suggesting Kingdon’s trades may have involved investments on behalf of Hindenburg, contravening FPI norms.
Email queries to Kotak Mahindra Bank and Kingdon Capital remained unanswered at the time of reporting.
The Sebi notice to Hindenburg, made public by the US-based short-seller, highlighted Kingdon Capital’s acquisition of an FPI entity through a Kotak subsidiary, allegedly used for short positions in Adani Enterprises.
‘The fund knew that disclosing its ties with Hindenburg could endanger the FPI account setup, as only principal trades are permissible. Hence, there’s suspicion that Kingdon intentionally concealed these links,’ another source familiar with the matter remarked.
‘In their declarations, Kingdon asserted these were principal trades. These issues require careful scrutiny, and Kotak will consider all legal avenues based on our assessment,’ the source added.
