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A Skeptical Stock Analyst Wins Big by Seeking Out Frauds

The activist short-seller behind Hindenburg Research has become known for research that sends companies’ stock sinking. He says he’s not in it just to move share prices.

By Matthew Goldstein and Kate Kelly

Last month, federal authorities charged the founder of the electric vehicle manufacturer Nikola, which had gone public in the summer of 2020, with defrauding investors. They were led there partly by the work of a little-known Wall Streeter named Nathan Anderson.

A stock researcher and investor, Mr. Anderson and his upstart firm, Hindenburg Research, are having a moment. In early August, the Securities and Exchange Commission subpoenaed the sports betting firm DraftKings after Hindenburg said in a June report that it had potentially enabled black-market betting. And shares of Lordstown Motors have fallen nearly 70 percent since Hindenburg said in March that the electric truck maker was hyping commercial interest for its vehicle. Federal authorities are investigating Lordstown’s claims.

Mr. Anderson’s five-person firm, which takes its name from the German airship that blew up in 1937, is a newbie in the world of finance. Founded in 2017, Hindenburg specializes in publishing detailed reports about publicly traded companies, poking holes in their stories and alerting investors to potential malfeasance. The boom in special purpose acquisition companies has provided Hindenburg with fertile ground.

It’s not an act of public service. Hindenburg, which has the backing of several investors, also makes financial bets that the stocks of the companies Mr. Anderson is targeting will fall after the firm issues its research. When the stocks do fall, Hindenburg makes its money in what is called a “short” trade.

“He’s become a real giant killer,” said Frank Partnoy, a former derivatives trader who is now a professor of securities law at the University of California, Berkeley, School of Law. He “seems fearless, even when going after some of the biggest corporate targets.”

Mr. Anderson has emerged as the newest face of a small club of investors called activist short sellers — a style of investing popularized by Carson Block of Muddy Waters and Andrew Left of Citron Research. Such investors are often reviled by companies for their pugilistic tactics. Ordinary investors hate them because their investments can suffer. Short sellers see themselves as financial detectives, sniffing out corporate wrongdoing or inflated stock prices. Some, like Mr. Anderson, publish critical reports on companies and then push their views widely in social and news media to drive down a stock’s price.

At the same time, they build a short position in the stock, borrowing shares of a target company from a brokerage firm and then selling them, expecting the stock price will fall on account of their negative research. If the stock does fall, the short seller buys the now-cheaper shares back, returns them to the broker and pockets the difference. But the strategy can be risky because the stock could instead rise.

On July 29, when federal authorities announced they had charged Trevor Milton of Nikola with securities fraud, the company’s shares plunged 15 percent. Mr. Anderson could not resist taking an online victory lap. The government’s actions were a “testament to the role of short sellers and critical researchers” in fostering a well-functioning stock market, he wrote on Twitter.

In a recent interview, Mr. Anderson said he felt vindicated. “But more than that, I’m glad we’re starting to make a real-world dent,” he added. “If the only impact was stock prices moving around, the work would be far less satisfying.”

Mr. Anderson, 37, is the son of a college professor and a nurse who grew up in a small town in rural Connecticut and earned a business degree from the University of Connecticut. During college, he lived for a time in Israel, working as a paramedic while taking classes at Hebrew University.

After college, Mr. Anderson took a job providing sales and technical advice to institutional clients of FactSet, a financial analytics company. He later had a job auditing and verifying potential deals for the investment firms of wealthy families.

But his passion, he said, was to “find scams.” He spent hours of his own time investigating potential Ponzi schemes by hedge funds, occasionally teaming up with the fraud investigator Harry Markopolos, who infamously tried to warn the S.E.C. in 2000 about wrongdoing at Bernard Madoff’s firm. When a small brokerage firm Mr. Anderson had established to provide due diligence services to hedge funds faltered, he sold his brokerage license and started Hindenburg.

“I didn’t plan it this way,” Mr. Anderson said. “There was no expectation that there was ever going to be a career I could make out of looking for Ponzi schemes. It was a side hobby that my employers were sometimes annoyed by.”

Working from a WeWork office in Midtown Manhattan, Mr. Anderson focused on shorting the stocks of lesser-known companies. He desperately needed a win. The debts were piling up, and he was in danger of being evicted from the Manhattan apartment he shared with his girlfriend, now fiancée. His lucky break came in December 2018, when he wrote a report with a hedge fund on the medical cannabis company Aphria. Hindenburg said the company’s insiders were using shell companies to “divert funds away from shareholders into their own pockets.”

Immediately after the report was published, Aphria shares plummeted 30 percent. The profits from the short bet allowed Mr. Anderson to stay in his apartment. Had the bet fallen through, said Mr. Anderson, who has a young daughter, he might have had to get a “real job” with a reliable income.

Today, Hindenburg employs a mix of former journalists, including from Bloomberg and CNN, and analysts, who have all been working remotely during the pandemic. The firm can take six months or more to produce a finished research report, which entails going through public records, talking to company employees and hunting for internal corporate documents. About 10 deep-pocketed investors bankroll some of the firm’s operations, and some of them make their own short bets alongside Hindenburg. Mr. Anderson declined to disclose the names of his investors.

“It has become a successful enterprise,” he said of his firm. “But it was very hard early on to fathom that anything would turn out of it.”

The boom in SPAC deals — such companies have raised nearly $200 billion since the beginning of 2020 — has provided rich material for Hindenburg to investigate. Sometimes called a “blank check” company, a SPAC raises money from investors through a public offering and has two years to find an operating business to merge with. Many companies that go public via this route undergo far less scrutiny than they would in initial public offerings.

Last summer, two whistle-blowers provided Hindenburg with a tip about Nikola, the electric truck maker that had gone public in June 2020 via a $700 million merger with a special purpose acquisition company called VectorIQ.

The whistle-blowers, former business associates of Mr. Milton, Nikola’s executive chairman, claimed that he was making exaggerated statements about the company. A few months later, Hindenburg published its report , calling Nikola an “intricate fraud built on dozens of lies.” According to the report, Nikola put out a promotional video to suggest it had a working prototype for its truck — without disclosing that the truck was moving only because it was rolling down a hill in neutral gear. Mr. Milton resigned a few weeks later, and the authorities began investigating.

Mr. Milton’s lawyers have denied the charges, and the company has said it cooperated with authorities. DraftKings, in disclosing the S.E.C. subpoena, said it would cooperate with the investigation.

“Nate’s killing it right now,” said Mr. Block of Muddy Waters. He added that Hindenburg found issues with Nikola that his own firm had looked for and missed.

“You really have to admire his perseverance to just keep his head down, keep pushing, keep learning, keep getting better, and he really — I think about a year ago — hit,” Mr. Block said. “And he did that with Nikola.”

Mr. Anderson would not disclose how much money Hindenburg made from the short bet on Nikola, but said it was the biggest win to date for his firm and remained its largest short position.

The Nikola report’s big splash led Hindenburg to another fledgling electric vehicle company: Lordstown Motors. Lordstown was also planning to go public through a SPAC and had earlier attracted the attention of former President Donald J. Trump as well as General Motors, which sold the company its assembly plant in Lordstown, Ohio.

Mr. Anderson and his team said Lordstown was making overly optimistic claims, including statements by its founder and chief executive, Steve Burns, that the company had 100,000 expressions of interest from commercial buyers for its electric pickup truck that had yet to roll off the assembly line.

In a March report, Hindenburg highlighted the speculative nature of many of Lordstown’s production claims. In June, Mr. Burns left Lordstown along with other members of his management team. Around the same time, the company said it desperately needed cash to survive and produce its first vehicle.

“There are just so many outrageous companies,” Mr. Anderson said. “Some of these companies we have looked at, they don’t have any revenues at all.”

Matthew Goldstein covers Wall Street and white collar crime and housing issues. More about Matthew Goldstein

Kate Kelly is a business reporter, covering big banks, trading and key financial-policy players. She is also the co-author of “The Education of Brett Kavanaugh” and the author of “Street Fighters.”  More about Kate Kelly

What’s Short Selling and Who Is Hindenburg Research?

If you buy low then sell high, chances are you’ll be richer and everybody will be happy. But reverse the trades with borrowed stock — what’s known as short selling — and you may be rich, but odds are that quite a few people will be displeased. Critics say that short sellers distort the market and that their practices can blur into market manipulation. “Shorts” say they’re keeping markets and companies honest. A series of negative reports from a short-selling firm, Hindenburg Research, have added fuel to the fire, as it targeted Carl Icahn’s Icahn Enterprises LP and companies affiliated with Indian billionaire Gautam Adani and Twitter co-founder Jack Dorsey.

1. How does short selling work?

Short sellers borrow shares, sell them, buy them back at a lower price and profit from the difference — unless the stock rises. Then they could lose money instead.

2. Who are the short sellers?

Most shorting is done by hedge funds and institutional investors to cushion their investments against falling stock prices or to bet that shares have risen too high. So-called activist shorts like Hindenburg, on the other hand, research companies to find targets that they allege have dodgy business or accounting practices, spread the word (sometimes anonymously) and, if all goes as planned, send the shares lower. Although activist shorts have been calling out companies for decades, their numbers have swelled with the rise of social media as a platform for disseminating theories and analysis.

3. What’s an example of short selling?

On March 23, Hindenburg Research took aim at Block Inc., the digital payments company co-founded by Dorsey that used to be called Square Inc. The activist firm said it was betting against the stock and published a report saying that Block’s Cash App was probably helping fraudsters take advantage of US government stimulus programs during the height of the Covid pandemic. It also alleged that Block was overstating how many people use Cash App and panned its $29 billion purchase of Afterpay, an Australian financial-technology company. The report sent Block shares tumbling. Block didn’t respond to requests for comment after Hindenburg published its report.

4. Is short selling illegal?

It’s legal in most major stock markets. What is banned either partially or fully in several markets is so-called naked short selling — betting on a stock’s decline without having first borrowed the shares. Even so, many markets issue temporary restrictions during periods of market turmoil — in part because critics say short sellers can transform downturns into full-blown panics. The US cracked down on short selling during the Great Depression and joined the likes of the UK, Germany and Japan in limiting short selling or banning it during the financial crisis that erupted in 2008. China’s regulator blamed “malicious” short selling in part for a stock market crash in 2015, placing limits on the practice as well as arresting traders. During the volatility that accompanied the onset of the pandemic in 2020, bans were imposed for several months in France, Spain, Italy, Belgium, Greece, Austria and South Korea, while the European Securities and Markets Authority ordered traders to disclose more information about short sales.  

5. Why is activist shorting especially controversial?

Opponents point to the ability of shorts to hoodwink investors by spreading false rumors before exiting a trade, a technique known as “short and distort.” Defenders say the potential for abuse shouldn’t discredit all shorts any more than “pump and dump” schemes disgrace all investors who whip up interest in a stock to push it higher and then sell it. Short sellers say they are skeptics who alert investors to bouts of market euphoria, identifying mispricing or deception that analysts, auditors and investors overlook. Many authorities dislike short selling — a former head of the New York Stock Exchange described the practice as “icky and un-American.” 

6. What is Hindenburg Research?

Hindenburg, founded by short-seller Nathan Anderson, describes itself as a forensic-research outfit operating with its own capital. But it follows the standard procedure for a so-called activist short: After researching a potential target, Hindenburg places a bet that the stock will decline, then trumpets its research publicly, using social media to get the message out. Anderson’s firm first attracted Wall Street’s attention in 2020 and 2021 for raising serious questions about electric-vehicle makers Nikola Corp. and Lordstown Motors Corp. It gained more prominence in February when it issued a 100-page report accusing the Indian conglomerate Adani Group of using a web of companies in tax havens to inflate revenue and stock prices, even as debt piled up. Adani said the claims were baseless and called them a “calculated attack on India.” Then in May, it accused corporate activist Carl Icahn of having an “opaque book of private investments” with inflated valuations at his publicly traded investment company, among other claims. That sent Icahn Enterprises’ stock down the most on record and erased $10 billion of Icahn’s fortune. Icahn, 87, called Hindenburg “Blitzkrieg Research” and said it was “wantonly destroying property and harming innocent civilians.”

7. Is short selling new? 

Not at all. Dutch traders were shorting as long ago as the 1600s, including during the tulip bubble. Napoleon labeled short sellers of government securities “treasonous.” Short selling stocks — as opposed to tulips — is particularly challenging because equity markets have a long-term track record of moving up rather than down. Still, it can be done. Jesse Livermore, known as the “King of the Bears,” made a fortune shorting railroad operator Union Pacific shortly before the 1906 San Francisco earthquake. The collapse of Enron Corp. in 2001 marked a notable scalp for shorts including Jim Chanos, who had been among the first to question its accounting. Muddy Waters’ Carson Block (no relation to Block Inc.) raised the profile of the new breed of activist shorts by taking aim at under-the-radar Chinese companies listed in North America. The practice can be perilous: Block said he stopped shorting Chinese companies for a time because “tattooed gangsters” came looking for him. 

More stories like this are available on bloomberg.com

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A U.S. short seller's fraud claims dethroned Asia's richest man. Here's what to know.

Gautam Adani rose from college dropout to become Asia’s richest man — but now he's seen his empire rocked by a week of turmoil.

The Indian tycoon has lost his title, and tens of billions in personal wealth, in a matter of days after a U.S.-based short-selling firm accused him of “the largest con in corporate history.”

Adani dismissed the allegations and accused the short-seller, Hindenburg, of a “calculated attack” on his country.

But the claims have triggered a meltdown for his company and sent shockwaves through the markets.

On Thursday, Adani abandoned his flagship company's planned stock offering as his conglomerate's losses topped $100 billion, deepening concerns about a potential broader impact on India's economy.

Here’s what to know.

What are the accusations?

Hindenburg Research published a report on Jan. 24 saying the Adani Group, one of India’s biggest conglomerates, had “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

The report was published days before the planned $2.5 billion share sale by Adani Enterprises, the conglomerate’s flagship company. 

In addition to accounting fraud, Hindenburg also accused the Adani Group of being involved in billions of dollars’ worth of “suspicious dealings with its chairman’s brother, Vinod Adani, and his labyrinth of offshore shell entities,” which it says the company used for stock manipulation.

Hindenburg has a track record of exposing alleged corporate wrongdoing while placing bets against these companies, a process also known as short selling. Hindenburg disclosed that it held short positions in Adani’s companies through assets traded in the United States and non-Indian-traded derivative instruments, which experts said positioned it to benefit from a drop in share prices.

The report, which Hindenburg said was based on interviews with former executives and research from thousands of documents, raised concerns about high debt and the activities of top executives and concluded that seven of Adani’s companies were overvalued.

What has Adani said?

Adani's business hit back at Hindenburg, threatening legal action and accusing it of sabotaging the share sale.

“The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens,” the conglomerate said in a statement last week.

In another 413-page response a few days later, Adani dismissed Hindenburg’s accusations as baseless, calling the short-seller the “Madoffs of Manhattan.”

“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,” Adani’s statement said.

Hindenburg replied that only about 30 of those pages addressed issues raised in its report, and that Adani had not answered 62 of its 88 questions.

“India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation,” the research group said. “We also believe that fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world.”

Hindenburg Research and the Adani Group did not respond to a request for additional comment.

How bad has the damage been?

Though Adani denied the allegations, the report resulted in a mass selloff of shares in the Adani Group’s listed companies, which according to Bloomberg have lost $107 billion in value.

Adani himself has lost $48.5 billion of his $120 billion fortune, according to the Bloomberg Billionaires Index , where he has fallen from third on the list to 13th. He has also slipped one spot below his rival and fellow Indian tycoon Mukesh Ambani, the chairman of Reliance Industries.

The record domestic share sale had been seen as a measure of market confidence in Adani after the report, and it initially had enough investor support to proceed on Tuesday. But the conglomerate called it off late Wednesday, citing “market volatility.”

“This decision will not have any impact on our existing operations as well as our future plans,” Adani said in a recorded video address aiming to calm investors that was released Thursday, his first public comments since the crisis began.

Adani said the decision to scrap the share offering was made “to insulate the investors from potential losses.”

“For me, the interest of my investors is paramount and everything else is secondary,” he said.

“We will continue to focus on timely executions and delivery of projects,” he said.

But the damage may have been done. Since Hindenburg's report was released on Jan. 24, Adani Group companies have lost nearly half their combined market value.

“Unless Adani is able to regain the confidence of institutional investors, stocks will be in freefall,” Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities, told Reuters.

Who is Gautam Adani?

Adani, 60, is from the western Indian state of Gujarat and built his empire from the ground up.

After dropping out of college, he became a diamond trader in Mumbai, the country’s financial capital, before going into commodities trading with his newly established Adani Enterprises in the 1990s.

Today, Adani is a household name in India and his empire spans almost every public sector — a fact that has meant Adani’s plummeting stocks have raised concerns about the potential for a wider impact on India’s financial system.

While the country isn’t solely reliant on the giant, “they are playing, like many others, a very important role in India’s infrastructure growth and infrastructure deployment,” Arvind Gupta, co-founder of the Digital India Foundation, a nonprofit think tank, told NBC News.

Adani's companies build ports, generate electricity, mine coal, run airports and manufacture defense equipment, among other things. Adani has also pledged to invest up to $70 billion in green energy projects.

As his companies’ share prices surged in recent years, Adani’s net worth has gone up about 2,000%.

Adani denies accusations that he has benefited from his close ties with Prime Minister Narendra Modi , who is also from Gujarat and has been known to use an Adani corporate jet for campaigning.

Late last year, Adani acquired a majority stake in NDTV, one of India’s last major independent television broadcasters and one that was critical of Modi. Several prominent journalists quit in the wake of the takeover.

India’s government has denied allegations of favoring Adani.

Mithil Aggarwal is a Hong Kong-based reporter/producer for NBC News.

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A security staff walks past the logo of Reserve Bank of India (RBI) at the RBI headquarters in Mumbai on August 7, 2019. (Photo by Indranil MUKHERJEE / AFP)(Photo by INDRANIL MUKHERJEE/AFP via Getty Images) INDRANIL MUKHERJEE/AFP via Getty Images hide caption

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Gautam Adani was recently one of the top ten richest people in the world. But, after a scathing report came out last month alleging him and his companies of wide-scale fraud, market manipulation and corruption, he has lost billions, and is no longer the richest person in Asia - or India.

What can this report from American firm Hindenburg Research and the events of the past two weeks tell us about the Indian business and financial environment?

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• Adani Group
• Hindenburg Research
• Gautam Adani
• Indian economy

What is short selling, and what is Hindenburg Research?

If you buy low and sell high, chances are you’ll be richer and everybody will be happy. Sell low after borrowing high — what’s known as short selling — and you may be rich, but odds are that quite a few people will be displeased.

Critics say that short sellers distort the market and that their practices can blur into market manipulation. “Shorts” say they’re keeping markets and companies honest.

A series of negative reports from a short-selling firm, Hindenburg Research, have added fuel to the fire, as it targeted companies affiliated with Gautam Adani, one of Asia’s richest men, and by Jack Dorsey, one of the founders of Twitter.

• Short seller accuses Jack Dorsey’s Block of facilitating fraud (March 23)
• Indian tycoon Adani hit by more losses, calls for probe (Feb. 3)

1. How does short selling work?

Short sellers borrow shares, sell them, buy them back at a lower price and profit from the difference — unless the stock rises. Then they could lose money instead.

2. Who are the short sellers?

Most shorting is done by hedge funds and institutional investors to cushion their investments against falling stock prices or to bet that shares have risen too high. So-called activist shorts like Hindenburg, on the other hand, research companies to find targets that they allege have dodgy business or accounting practices, spread the word (sometimes anonymously) and, if all goes as planned, send the shares lower. Although activist shorts have been calling out companies for decades, their numbers have swelled with the rise of social media as a platform for disseminating theories and analysis.

3. What’s an example of short selling?

On March 23, Hindenburg Research took aim at Block Inc., the digital payments company co-founded by Dorsey that used to be called Square Inc. The activist firm said it was betting against the stock and published a report saying that Block’s Cash App was probably helping fraudsters take advantage of U.S. government stimulus programs during the height of the Covid pandemic.

It also alleged that Block was overstating how many people use Cash App and panned its $29 billion purchase of Afterpay, an Australian financial-technology company.

The report sent Block shares tumbling. Block didn’t respond to requests for comment after Hindenburg published its report.

4. Is short selling illegal?

It’s legal in most major stock markets. What is banned either partially or fully in several markets is so-called naked short selling — betting on a stock’s decline without having first borrowed the shares. Even so, many markets issue temporary restrictions during periods of market turmoil — in part because critics say short sellers can transform downturns into full-blown panics.

The U.S. cracked down on short selling during the Great Depression and joined the likes of the UK, Germany and Japan in limiting short selling or banning it during the financial crisis that erupted in 2008. China’s regulator blamed “malicious” short selling in part for a stock market crash in 2015, placing limits on the practice as well as arresting traders.

During the volatility that accompanied the onset of the pandemic in 2020, bans were imposed for several months in France, Spain, Italy, Belgium, Greece, Austria and South Korea, while the European Securities and Markets Authority ordered traders to disclose more information about short sales.  

5. Why is activist shorting especially controversial?

Opponents point to the ability of shorts to hoodwink investors by spreading false rumors before exiting a trade, a technique known as “short and distort.”

Defenders say the potential for abuse shouldn’t discredit all shorts any more than “pump and dump” schemes disgrace all investors who whip up interest in a stock to push it higher and then sell it. Short sellers say they are skeptics who alert investors to bouts of market euphoria, identifying mispricing or deception that analysts, auditors and investors overlook.

Many authorities dislike short selling — a former head of the New York Stock Exchange described the practice as “icky and un-American.” 

6. What is Hindenburg Research?

Hindenburg, founded by short-seller Nathan Anderson, describes itself as a forensic-research outfit operating with its own capital. But it follows the standard procedure for a so-called activist short: After researching a potential target, Hindenburg places a bet that the stock will decline, then trumpets its research publicly, using social media to get the message out.

Anderson’s firm first attracted Wall Street’s attention in 2020 and 2021 for raising serious questions about electric-vehicle makers Nikola and Lordstown Motors It gained more prominence in February when it issued a 100-page report accusing the Indian conglomerate Adani Group of using a web of companies in tax havens to inflate revenue and stock prices, even as debt piled up. Adani said the claims were baseless and called them a “calculated attack on India.”

7. Is short selling new? 

Not at all. Dutch traders were shorting as long ago as the 1600s, including during the tulip bubble. Napoleon labeled short sellers of government securities “treasonous.”

Short selling stocks — as opposed to tulips — is particularly challenging because equity markets have a long-term track record of moving up rather than down. Still, it can be done.

Jesse Livermore, known as the “King of the Bears,” made a fortune shorting railroad operator Union Pacific shortly before the 1906 San Francisco earthquake. The collapse of Enron in 2001 marked a notable scalp for shorts including Jim Chanos, who had been among the first to question its accounting.

Muddy Waters’ Carson Block (no relation to Block Inc.) raised the profile of the new breed of activist shorts by taking aim at under-the-radar Chinese companies listed in North America. The practice can be perilous: Block said he stopped shorting Chinese companies for a time because “tattooed gangsters” came looking for him. 

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What is Hindenburg Research, the firm that has taken billions off the net worth of Asia’s richest man?

Hindenburg Research, the financial research firm with an explosive name and a track record of sending the stock prices of its targets tumbling, is  taking on one of the world’s richest  men.

Hindenburg is back in the headlines after last week  accusing Indian conglomerate Adani  Group of “a brazen stock manipulation and accounting fraud scheme.” It cited two years of research, including talks with former Adani senior executives and reviews of thousands of documents.

The Adani Group has  blasted the accusations , calling them “a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts.”

Nevertheless, Hindenburg’s scorching allegations have caused the fortune of Adani Group’s founder, Gautam Adani, to slide by more than $34 billion in just a week, according to the Bloomberg Billionaires index. Here’s a look at the firm behind all the movement:

What is it?

Hindenburg says it specializes in “forensic financial research.” In layman’s terms, it looks for corruption or fraud in the business world, such as accounting irregularities and bad actors in management.

Where did its name come from?

The firm says it sees the Hindenburg, the 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.”

Who else has Hindenburg gone after?

It’s perhaps most famous for a 2020 report on Nikola, a company in the electric-vehicle industry whose founder Hindenburg said made misleading claims to ink partnerships with top auto companies hungry to catch up to Tesla .

Among its allegations, Hindenburg accused Nikola of staging a video to calm skepticism about its truck, one that showed the vehicle cruising on a road. Hindenburg said the video was actually just showing the truck rolling down a hill after getting towed to the top.

What has come of such accusations?

For Nikola, quick scrutiny from the government and investors.

The company and its founder, Trevor Milton, received grand jury subpoenas from the U.S Attorney’s office for the Southern District of New York and the N.Y. County District Attorney’s Office shortly after Hindenburg released its report.

The Securities and Exchange Commission also soon issued subpoenas to Nikola’s directors.

Milton was  convicted this past October  of charges he deceived investors with exaggerated claims about his company’s progress in producing zero-emission 18-wheel trucks fueled by electricity or hydrogen.

And Nikola in late 2021  agreed to pay $125 million  to settle SEC charges that it defrauded investors by misleading them about its products, technical advancements, and commercial prospects.

What does Hindenburg get out of this?

It can make money. In its Adani report, it said that it had taken a “short position in Adani Group Companies” through bonds that trade in the U.S. and other investments that trade outside India.

It has made similar “short” bets against other companies it published unflattering reports on. A “short” trade is a way for someone to make money if an investment’s price falls. Afterward, if the price of a company’s stock or bonds falls because of the negative attention from the report, Hindenburg can profit.

Such short sellers have been criticized for unfairly pushing down prices of stocks with potentially unfounded allegations. But proponents also call them a  healthy part of a stock market , keeping stock prices in check and preventing them from running too high.

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Who is behind Hindenburg, the research firm targeting the Adani group?

Hindenburg Research’s bruising report accusing the Adani Gr oup of pulling off “ the largest con in corporate history ” has rattled India’s stock markets.

On Jan. 24, the New York-based forensic financial research firm disclosed its short positions on Adani companies , on the grounds of alleged accounting fraud and “brazen stock manipulation” over the course of decades. This has sent shares of the company spiraling down into a deep red zone in the past two days. So far, its seven listed entities have lost $39.4 billion of value .

Hindenburg Research has a track record of exposing corporate wrongdoings, including those of electric-truck maker Nikola Corporation , and of   betting wisely on short and long investments , as it did with Twitter during the social media company’s long takeover drama with Elon Musk .

Hindenburg’s latest report , 106 pages in all, seeks answers to 88 questions related to discrepanc ies at Adani that it says it found across two years. The group’s chief, Indian industrialist Gautam Adani, is Asia’s richest man, with a net worth of roughly $120 billion.

The conglomerate’s legal head, Jatin Jalundhwala, in a statement on Jan. 26, said the company was “deeply disturbed” by the “intentional and reckless” attempt to tarnish Adani’s reputation ahead of a follow-on public offer that opened today (Jan. 27).

The extent of the damage triggered by Hindenburg’s findings is of widespread importance in India, where several public-sector banks and the country’s trust fund Life Insurance Corporation (LIC) hold large stakes in the company . If Adani collapses, it will hurt taxpayers in a big way.

What is Hindenburg Research?

Nathan Anderson founded Hindenburg Research in 2017 to analyze the equity, credit, and derivative markets. The name Hindenburg is derived from the 1937 airship explosion in New Jersey that killed 36 passengers.

The firm says on its website that it looks for “man-made disasters, ” such as accounting irregularities, mismanagement, and undisclosed related-party transactions . Its stated aim: to uncover corporate disasters before they “lure in more unsuspecting victims.”

Anderson’s firm has targeted at least 16 companies to date. It employs 10 people, mostly former journalists and analysts, Bloomberg reports.

Who is Hindenburg’s founder?

Anderson, 38, grew up in a small town in Connecticut and earned a degree in international business at the University of Connecticut.

Seeking a “diverse set of experiences,” as he put it to the Financial Times in 2021 , he worked as a paramed ic while studying abroad in Israel. His career in finance began at financial data company FactSet Research Systems. There, he worked with investment management companies, and found that “the processes across these firms is virtually the same, and not particularly incisive,” as he told the FT.

Stints in capital-raising at the firms Blue Heron Capital and Tangent Capital were Anderson’s first steps toward investigative research. His roles involved studying hedge funds and investment opportunities for high-net-worth individuals, according to his his LinkedIn profile .

His first big win was unearthing fraud at hedge fund Platinum Partners . For this case, Anderson teamed up with another senior financial fraud investigator, his mentor Harry Markopolos, who famously went after Bernard Madoff’s Ponzi scheme .

Why do corporates fear Anderson?

The short-seller is often not welcome in corporate circles, where short bets are c ommonly viewed as a means to attack companies and stunt their growth.

Short sellers, who profit when a targeted stock declines , have been a part of the market ever since the stocks came into existence. They create an important system of checks and balances in markets prone to froth.

According to Hindenburg’s report, the firm put together its short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments. It also underscored the huge debt pile on the Adani books, which Hindenburg says has put the entire group on a “precarious financial footing.”

By the digits

$100 billion : Addition in Gautam Adani’s net worth in the past three years due to a meteoric rise in stock prices

$39.4 billion : Wealth erosion of Adani Group in a span of two trading days

38 : The number of shell entities identified by Hindenburg Research that are allegedly controlled by Gautam Adani’s elder brother Vinod Adani or other close associates

$17 billion : The combined amount of alleged money laundering, theft of taxpayer funds, and corruption that was previously investigated by f our government agencies that looked into Adani holdings

85%+: The amount of downside Hindenburg sees for Adani-listed firms “purely on fundamentals”

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What is Hindenburg Research, the company that has accused Adani Group of stock manipulation, fraud?

Over the last few years, nate anderson, an american short seller, has published critical research and analyses of alleged corporate fraud that have triggered investigations and regulatory action..

Days ahead of a $2.5 billion share offering by Adani Enterprises, stocks of Adani Group companies fell sharply on Wednesday after investment research firm Hindenburg Research published a report that it said presented evidence that the conglomerate had “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”.

Hindenburg, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, said key listed companies in the group had “substantial debt” which has put the entire group on a “precarious financial footing”, Reuters reported.

Jugeshinder Singh, Chief Financial Officer of the Adani Group, said the company was shocked by the report, Reuters said, and called it a “malicious combination of selective misinformation and stale, baseless and discredited allegations”.

What does Hindenburg Research do?

Hindenburg Research says on its website that the company specialises in forensic financial research. It says it has decades of experience in the investment management industry, “with a historical focus on equity, credit, and derivatives analysis”.

The company says it believes that “the most impactful research results from uncovering hard-to-find information from atypical sources”, and that it especially looks for “accounting irregularities; bad actors in management or key service provider roles; undisclosed related-party transactions; illegal/ unethical business or financial reporting practices; and undisclosed regulatory, product, or financial issues” in companies.

Who are the people behind the company?

Hindenburg Research LLC was founded by Nathan (Nate) Anderson, 38, who studied international business management at the University of Connecticut and lived in Jerusalem before returning to the United States 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, according to a profile of the man published in the Financial Times in June 2021.

At the time the Financial Times article was written, Anderson worked with a small team of five full-time employees and “a handful of contractors”.

Before he founded Hindenburg, Anderson worked with Harry Markopolos, who had flagged Bernie Madoff’s Ponzi scheme, to investigate Platinum Partners, a hedge fund that was eventually charged with fraud worth $1 billion, the FT report said.

“He is a world-class digger,” the report quoted Markopolos as saying of Anderson. “If there are facts he will find them and all too often he’ll discover that there are skeletons in the closet.” Anderson considers Markopolos his mentor, the FT report said.

In Jerusalem, Anderson volunteered for a local ambulance service, an experience that he says continues to stand him in good stead.

“As an ambulance medic you are trying your best to heal things that are broken,” the FT report quoted him as saying. At Hindenburg “we come in and try to illuminate some of these problems that might be lurking under the surface at some of these companies, in some of these industries, and see if we can make things better”, he told the newspaper.

The report also said that he had learnt valuable lessons during the time he spent in Washington and New York, and that he had realised while managing client accounts for investment managers that “the processes across…firms were virtually the same, and not particularly incisive”.

What other work has Hindenburg done?

The company’s website describes its “track record”, lists a number of cases, beginning with its September 2020 report, ‘Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America’ that, “with the help of whistleblowers and former employees, called out a vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors”.

Nikola is an American energy solutions company that manufactures electric vehicles. Nikola was Anderson’s “breakthrough in size and notoriety”, Markopolos told the FT. Now, “he is on a roll and companies fear him”, he told the paper.

Other mentions in the track record include WINS Finance, which Hindenburg revealed had failed to disclose to US investors an RMB 350 million asset freeze imposed on one of its subsidiaries in China; the “zombie company” China Metal Resources Utilization, which had a “100% downside” and was “under severe financial distress” with “numerous accounting irregularities”; and a whistleblower report that Anderson submitted to the United States Securities and Exchange Commission (SEC) “relating to RD Legal, a hedge fund that was later charged by the commission for allegedly making material misstatements to its investors”.

Almost all of Hindenburg’s work has been followed up by legal or regulatory action, according to its website.

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Finally, why is the company called ‘Hindenburg’?

The name comes from the Hindenburg disaster of 1937, an accident in which a German passenger airship caught fire and was destroyed, killing 35 people.

Says the website: “We view the Hindenburg as the epitome of a totally man-made, totally avoidable disaster. Almost 100 people were loaded onto a balloon filled with the most flammable element in the universe (hydrogen). This was despite dozens of earlier hydrogen-based aircraft meeting with similar fates. Nonetheless, the operators of the Hindenburg forged ahead, adopting the oft-cited Wall Street maxim of “this time is different”.

“We look for similar man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims,” their website adds.

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Explainer: Adani vs Hindenburg- All you need to know about the story so far

Founded in 2017 by Nathan Anderson, Hindenburg Research is a forensic financial research firm which analyses equity, credit and derivatives. It has a track-record of finding corporate wrongdoings and placing bets against the companies.

India's Adani Group called off its $2.5 billion share sale late on Wednesday, in a dramatic reversal triggered by the ongoing meltdown of its company stock prices.

Also Read| Gautam Adani, one of India's most powerful men, suffers a rare defeat

Hindenburg Research criticised the Indian conglomerate in a Jan. 24 report ahead of the Adani Enterprises share sale, setting off an $86 billion rout in the group's domestically listed stocks and a sell-off in its bonds listed overseas.

Here are some of the points raised and the Adani Group's responses.

Who are Adani and Hidenburg?

Gautam Adani, from Gujarat in western India, built his empire after starting out as a commodities trader. India's Prime Minister Narendra Modi is from the same state and their relationship has long come under scrutiny by Modi's opponents.

Also Read| Centre in touch with SEBI over Hindenburg research on Adani Group: Report

A school drop-out, Adani rose to become Asia's richest man whose $220 billion empire spans ports, power generation, airports, mining, edible oils, renewables, media and cement.

Until last week, Adani was the world's third-richest man but has dropped down the ranks to number 15 on the Forbes rich list after the rout in Adani group stocks.

What did Hindenburg say?

Hindenburg disclosed that it holds short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivatives.

It released a report alongside the disclosure alleging improper use of tax havens and flagging concerns about debt levels.

What was Adani's response?

The Adani group has called the report baseless and termed the allegations "unsubstantiated speculations".

Is this the first time these issues have been raised?

No. India's capital markets regulator, the Securities and Exchange Board of India, has investigated some of these issues over the past year following local media reports.

Reuters reported the regulator will continue this scrutiny and draw on any fresh information in the Hindenburg report.

The regulator has launched a "full-scale" investigation into the recent crash in shares of Adani Group companies and is also looking into any possible irregularities in the $2.5 billion share sale, Reuters reported on Wednesday.

What does Hindenburg say about financial controls?

The short-seller has said that listed Adani companies have seen a number of changes in chief financial officers (CFOs) and that auditors used by the group are relatively unknown.

It said Adani Enterprises has had five chief financial officers over the course of eight years, citing this aS "a key red flag indicating potential accounting issues".

How has Adani responded?

The Adani group said that several of the CFOs that the Hindenburg report points to have remained within the group and moved on to new roles.

On the quality of audits, it said that the audit committee of each of the listed companies is composed entirely of independent directors, and auditors are appointed on their recommendation.

On Tuesday, Mint newspaper reported that Adani is considering an independent audit of group companies to resassure investors. Reuters could not independently verify this.

Late on Wednesday, Adani Enterprises called off its $2.5 billion share sale in a dramatic reversal as a rout sparked by a U.S. short-seller's criticisms wiped billions more off the value of the Indian tycoon's stocks.

Hidenburg's view of Adani leverage and what is the Group's response?

The report says key listed Adani companies have substantial debt and are over-leveraged. It also says the group faces liquidity risks due to high short term liabilities, with five of the seven key listed companies having reported "current ratios" below 1, indicating near-term liquidity pressure.

Adani responded by saying leverage ratios of its companies continue to be healthy and are in line with the industry benchmarks of the respective sectors, further adding that this information is publicly disclosed regularly.

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Hindenburg Report

What is Hindenburg Report?

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What is the Hindenburg Research and what did it report on the Adani Group?

The hindenburg research has made strong allegations against the adani group, saying that the firm had been brazen while manipulating the market and indulging in accounting fraud. the adani group raises a brow over the analysis. know the full story here..

 The Hindenburg Research released on January 24 made some serious allegations about the Adani group. The Adani Group broke its silence over the issue by calling the research a “malicious combination of selective misinformation.” The group also made it clear that even the “highest courts” of the country.

What did the Hindenburg Research say about the Adani Group?

On Wednesday, Hindenburg Research said it held short positions in the Adani Group. In response, the Adani Group says that the statements in the report were made with a mala fide intention to hamper the reputation of Adani Enterprises.

The Hindenburg report stated that the Us-based firm holds short positions in the Adani Group via US-traded bonds and non-Indian-traded derivatives. The Research disclosed its short position and accused the Adani Group of engaging in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

The Hindenburg also said that the company had “substantial debt”. This debt has landed the complete group on a “precarious financial footing.”

As a result of the report, the stocks of the Adani Group have fallen drastically.

What is the Adani Group planning to do now?

Ahead of Hindenburg Research throwing serious allegations on the Adani Group, the latter plans to file a suit against the US-based investment research firm.

As per the Adani Group, the research was “malafide and mischievous”, which eventually dropped company shares on Wednesday.

In a statement, the Adani Group expressed that, "We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research."

How did the Hindenburg Research affect the Adani Group?

As per the Adani Group, the report by the Hindenburg Research has been “maliciously mischievous, and unresearched”, and had an adverse effect on the Indian firm’s investors and shareholders.

Jatin Jalundhwala, Adani Group Head, Legal, expressed that, “ The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens. Clearly, the report and its unsubstantiated contents were designed to have a deleterious effect on the share values of Adani Group companies as Hindenburg Research, by their own admission, is positioned to benefit from a slide in Adani shares.”

"We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the FPO (Follow-on Public Offering) from Adani Enterprises," stated the Adani Group.

What is the Hindenburg Research?

The Hindenburg is a US-based Research founded by Nate Anderson. It specializes in forensic accounting. The Research is popular for its critical findings on EVs. As said on its website, the company works “ with a historical focus on equity, credit, and derivatives analysis”.

When one looks at the company’s website, one will find that it mentions its “track record” and mentions a list of cases. The cases begin with their report “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America” in September 2020.

People behind the Hindenburg Research

Nathan (Nate) Anderson, 38, founded Hindenburg Research LLC. The man studied international business management at the University of Connecticut. He then lived in Jerusalem before moving to the United States. After returning to the U.S. He worked at a consulting job with FactSet, a financial software company. Then, he started working at a broker-dealer firm in New York and Washington DC.

Next, Nate Anderson started working with Harry Markopolos, after which he founded the Hindenburg Research.

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Temenos rejects Hindenburg claims after probe completed

Shares in core banking provider Temenos have risen upon news that an investigation commissioned by the company found that accusations of mismanagement by short seller Hindenburg Research were "inaccurate and misleading".

Hindenburg's claims first surfaced in February when the US-based activist investor  shorted Temenos stocks alleging "accounting irregularities, failed products and an illusive turnaround".

The allegations were based on a report Hindenburg conducted in February involving 25 former Temenos executives. The tech company's share price subsequently dropped by 25% on the day of the report's publication.

The responding independent probe was conducted by a special committee formed by the Temenos board and led by executive chairman Thibault de Tersant.

The committee was assisted by two law firms - Schellenberg Wittmer and Sullivan & Cromwell, as well as forensic accountants Alvarez & Marsal Switzerland.  

According to Temenos, the committee was granted unrestricted access to company executives and all relevant documents including communications and records. 

The subsequent review included more than 300,000 documents and electronic communications along with interviews with 17 current and former Temenos employees.

The committee determined that Hindenburg Research made "incorrect and misleading allegations about Temenos and its accounting, products and customer relationships and presented purported facts about Temenos in a distorted manner or out of context", stated Temenos.

The findings of the latest review were welcomed by Temenos chairman.

"The report has found that Hindenburg’s Research’s allegations were inaccurate and misleading," stated de Tersant. "It clearly reinforces the Board’s view that Temenos is running a sound business, offering best in class products and has robust financial controls and strong governance oversight. Temenos remains fully focused on servicing its clients and building relationships with its partners."

In addition, Temenos stated that it hopes to install a new CEO in time for its shareholder meeting in early May. The previous incumbent Max Chuard (pictured) departed in January 2023 under pressure from investors. 

Hindenburg Research has yet to respond to the findings of the latest review. 

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Temenos’ “Independent Examination” Strikes Us As A Tacit Confirmation Of Accounting Manipulation And Disclosure Violations, Spun With Lawyer-Speak And Gaslighting

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Earlier this week, Temenos disclosed the outcome of a months-long investigation, commissioned by a Special Committee of its board, in response to our February 2024 report that highlighted, among other things, major accounting irregularities and suspect business practices at the company.

Our report was the result of a 4-month investigation that included extensive document review and interviews with 25 former employees, including former senior leaders at the company. 

The company’s own examination report, compiled by lawyers and accountants from Schellenberg Wittmer, Sullivan & Cromwell, and Alvarez & Marsal Switzerland who were retained by four members of Temenos’ board, including its Chairman, said “over 150 attorneys and forensic accounting professionals have spent over 22,000 hours” examining our report.

And while the examination leads by saying we made “inaccurate and misleading allegations,” the content of the examination’s findings indicates the opposite – a tacit confirmation of accounting manipulation and disclosure violations at Temenos, spun with lawyer-speak and gaslighting.

Former Temenos Executives And Sales Leaders Told Us How Contracts Were Backdated To Manipulate Earnings

The examination confirmed this practice: it found 7 instances of backdating contracts, 4 instances where revenue was pulled into the previous quarter, and discussion among employees about backdating a client signature.

In our February 2024 report, we highlighted former Temenos executives and sales leaders who described how Temenos would manipulate earnings through contract backdating. In many jurisdictions , backdating contracts is prohibited.

Temenos’ examiners described how they looked “for any reference to backdating” between 2019 and 2023. It is unclear what this means, whether it was a search limited to keywords such as “backdate”, an actual review of all sales contracts and related communications, or another approach.

Despite the vaguely described parameters of the review, the examination nonetheless found evidence of backdating: it confirmed 7 instances of backdating where, in 4 of those cases, revenue was pulled back into the previous quarter.

The report provided no justification as to why revenue was booked in previous quarters.

The investigation also found internal discussion between Temenos sales personnel about “the potential for backdating of a client signature.”

We view this as a tacit admission that Temenos has previously failed to prevent accounting manipulation via backdating. [ Pg. 4 ]

Temenos further validated our concerns by telling the committee it “plans to take additional measures to enhance its procedures with respect to contract signatures.” [ Pg. 4 ] If the procedures were effective in the first place, there would be no need to change them.

The examination then tried to exonerate the current and former CEO and legal teams by saying it “found no evidence” that they “were aware of backdating of sales contracts.” [ Pg. 4 ]

Given that we were able to ascertain information about backdating during our investigation, with multiple former employees specifically explaining how the practice was encouraged, this is likely false, and senior executives at best were negligent in not knowing or wilfully ignorant.

Our Report Uncovered That Temenos Funded The Purchase Of Its Own Software Through An “Undisclosed Investment” Into Mbanq, Per A Former Executive

The independent examination confirmed our findings, showing that temenos made sales deals “at the time of these investments” and never disclosed it to investors, despite confirming every key element of our report’s findings on the mbanq deals, the examination merely took issue with our characterization of this apparent roundtripping scheme as a roundtripping scheme.

In our report, we highlighted evidence indicating Temenos had secretly funded the purchase of its own software, effectively engaging in a roundtripping scheme by making an undisclosed ~$20 million investment into Mbanq at the same time Mbanq signed a deal committing to purchasing ~$20 million in software services from Temenos, per a former Temenos executive we spoke with. The independent examination essentially confirmed the entirety of these allegations, and presented new evidence indicating the issue was worse than we had uncovered. 

The review highlighted, as we alleged, that in June 2021 and September 2022, Temenos made investments in Mbanq, and confirmed that Mbanq acquired software licenses from Temenos “at the time of these [June 2021 and September 2022] investments.” [ Pg. 5 ]

Note that the review said that software “licenses”, plural, were sold at the time of the “investments”, also plural, indicating that 2 such simultaneous investment and software sales deals took place.

The examination is conspicuously silent on why Temenos did not disclose any of this to investors at the time, or why it did not even disclose its investment in Mbanq months later in October 2021 when it first announced a partnership. Instead, Temenos only mentioned a “minority investment” in an announcement over a year later in December 2022. Further evidencing that the sale was ultimately a sham, the examination stated that Temenos had received only $13.3 million in revenue (22% of the total investment) from Mbanq. Per the CFO’s statements in February 2024, Temenos will receive no further revenue. [ Pg. 10 ] The review was silent on why .

Not only do these findings obviously support our conclusion of roundtripping, but they also seem to highlight material losses incurred by Temenos shareholders as a result. Nonetheless, the review took issue not with the facts, but with our characterization that this represented evidence of a roundtripping scheme.

In light of the above, we think CEO Andreas Andreades should immediately resign.

Our Report Highlighted That Temenos’ “Game-Changing” Partnership With DXC Had Failed

The independent examination revealed for the first time to shareholders that temenos’ partnership with dxc had indeed failed, the exact date the partnership failed was not disclosed.

In our report, we also highlighted the failure of Temenos’ partnership with DXC to offer software to its US customer base, described as “game-changing” by former CEO Max Chuard. [1] [ 24:40 ]

Note that from our report ,

“A former DXC executive told us the deal was ‘rushed through’ on the last day of the year to ‘help Temenos make their yearly number’. They said of the deal: ‘This isn’t a partnership. You used us for a license sale.’”

The deal was announced in February 2021 and the former executive told us that DXC was “left at the altar” from the beginning and that the partnership had been written off roughly 1.5 years after signing. Despite this, Temenos consistently tried to convince investors that the deal was on solid footing. As late as July 2022, then CEO Max Chuard claimed that continued discussion with DXC “has not changed” on its Q2 2022 earnings call. [ Pg. 24 ] The independent examination confirmed our findings and for the first time acknowledged the failure of the DXC partnership . In delicately worded legal speak, it stated that “the partnership’s goal was not met” without specifying exactly when the partnership fell apart:

“Temenos and DXC continued to work together into 2022 to advance the complex project, but the partnership’s goal was not met, including because of the parties’ shifting business strategies and priorities.” [ Pg. 6 ]

The review acknowledged the deal was signed in “December 2020”, but avoided our question about the actual date and whether the deal was made around the last day of the year, helping Temenos make its yearly number. [ Pg. 5 ] This was an easy question to answer, but it was ignored.

In brief, the examination confirmed our findings about the failure of the DXC partnership —information that was withheld from Temenos shareholders until this week and only as a result of our pressing for disclosure.

Former Executives Told Us That Temenos’ R&D Spend Was “Non-Existent” And A “Mystery” The Independent Examination Avoided Our Questions About R&D Spending And Failed To Disclose Where The Majority Of Temenos’ $279.8 Million R&D Spend Has Gone

In our report, we questioned where most of Temenos’ $279.8 million in R&D was being spent. Former executives told us Temenos’ R&D spend was virtually “non-existent” and a “mystery”. We highlighted that “Temenos’  principal R&D centers  are in India, but its primary Indian subsidiary   reported  just INR 6.33 billion (~$76 million USD) in total expenses in 2022”.

The independent examination failed to address our question and instead changed the subject, wrongly stating that our report “misstates the amount of Temenos’ reported expenses in India by taking into account only one of the Company’s two subsidiaries in that country.” [ Pg. 6 ]

This attempt at misdirection falls flat. The company reports 2 other group companies in India per both its 2022 and 2023 annual report. [Pg. 224 & Pg. 235 ] In 2022, compared to the primary subsidiary, the two other India subsidiaries reported much lower total expenses of just 16,506 lakh rupees (~U.S. $22 million at the time) and 22.7 million rupees (~U.S. $300,000 at the time). [2]

Our report highlighted suspicions that Temenos was booking client-specific implementation expenses as R&D. The review ignored this, simply regurgitating Temenos’ justification for capitalizing individual client-specific costs as R&D, vaguely arguing that these contribute to the “value of Temenos’ intellectual property”. [ Pg. 6 ]

Overall, the independent examination deftly avoided the issues we raised about the company’s mysterious R&D spend and failed to provide further details on the source of at least 64% of its claimed R&D expenditures. [3] At this point, we view this as another tacit admission.

We Alleged That Temenos’ Digital Bank Product “Infinity” Was A Failed Rollup

The independent examination showed that reported digital clients may have fallen as much as 29%-41% since november 2022, raising new questions of whether temenos had previously overstated its client count.

In our report, we showed how Temenos’ digital bank product “Infinity” (renamed “Temenos Digital”) was a failed $840 million roll-up, suggesting the $1.07 billion in goodwill should be tested for impairment. [ Pg. 47 ]

The review seemed to validate these concerns, providing a long explanation for Infinity’s challenges, ranging from early integration issues to the pandemic before saying that after considerable time and attention, Infinity implementations eventually “improved”. [ Pg. 9 ]

Rather than providing normal financial metrics to help investors quantify these struggles, the review opted to lump 2020-2023 revenue metrics together, saying Infinity collectively generated $548 million total revenue in that period, leaving investors with no ability to assess basic annual revenue trends. It was even more vague on profitability, saying “profitability has increased”, providing no sense of what that profitability was or is. [ Pg. 9 ]

This information, which the company and examination review has clearly chosen to withhold, is vital for investors to gauge the true state of Infinity given that Temenos has also incurred significant R&D spend in addition to its acquisitions. In February 2022, the current CFO told investors:

“We have made considerable R&D investments into our, as Max explained, composable banking services architecture, and also Infinity .” [ Pg. 17 ]

Following our report, other former employees and individuals reached out with additional stories corroborating many of the practices we had written about. One new issue that was brought to our attention in multiple instances was the question of whether Temenos’ client count was accurate.

Refreshingly, the review raised new questions about Temenos’ client counts, albeit without openly saying so. In November 2022, Temenos announced it had passed 850 customers using Temenos Infinity. The CEO at the time, Max Chuard, implied these were live users, stating that 850 customers “leverage Temenos Infinity”.

Yet per the examination report, Temenos Digital now has only “more than 500 [live] clients”, a potential 41% drop from earlier reported metrics. [ Pg. 9 ] The company’s 2023 annual report, released on the same day as the examination report, states the company has over 600 digital clients in total, a potential 29% drop from earlier reported metrics. [ Pg. 4 ]

This revelation seems to show that earlier Temenos digital banking customer counts were inflated. [4]

The company has attempted to explain away the large discrepancy by saying it has a new methodology for counting customers. [5] [ Pg. 4 ]

This makes little sense. A mere count of unique customers isn’t the type of metric subject to a complicated methodology, and certainly not one that would result in such a wide discrepancy. We think the company should answer whether the independent review performed a client count and exactly how it changed its ‘process’ for calculating this basic, but key metric.

The described problems with Infinity, the vague or non-existent financial disclosures, and the apparent exodus or inflation of disclosed clients underscores Infinity’s struggles, yet the company has thus far taken no write-down. We expect it will.

A Hodgepodge of Wordsmithing

Other findings seemed to take issue with our characterization of issues without expressly denying the supporting evidence. For example, the review took issue with our characterization of pulling licensing renewals forward at a “deep” discount, while acknowledging that such early renewals took place, which risk cannibalizing future overall revenue. [ Pg. 7 ]

The review also simply ignored questions. It acknowledged that 34 Powers of Attorney were issue to execute sales contracts, denied this played a role in the backdating, but didn’t elaborate on the reason for this unusual sales practice. [ Pg. 3-4 ]

We also flagged in our report how the company’s stock buybacks often coincided with executive stock grants and sales. In response, the review asserted that the company’s stock buybacks were “administered by independent broker-dealers”, valiantly defending against an allegation no one ever made. [ Pg. 3 ]

“Independent reviews”, are an interesting feature of the market. A report commissioned by a company, paid for by the company, with the word “independent” ironically slapped on the cover.

As is often the case, these carefully prepared reviews are cloaked in distractions, gaslighting, diversions, key omissions and positively-spun-sounding conclusions that interested parties rush to hail as an exoneration. But a peek under the surface shows how much of the review confirms our findings, which we fully stand by to this day. It also raises brand new questions about client counts and other key metrics the company is clearly choosing to withhold from investors.

Further Discussion

Sometimes, interested parties such as long investors , after apparently failing to read a 10-page examination report past the first page and believing any positive sounding conclusions, like to make grandiose calls for litigation and regulatory intervention against research firms like Hindenburg. To be clear, we would welcome the opportunity to review all of the documents, interviews and materials underpinning the review. If the reviewers hired by the company have been forced to admit to the findings in the examination, we can only imagine what else we would find upon our own thorough examination.

Interestingly, following our initial report in February, the long investor we are referencing, Petrus Advisers, reported that it had spoken with many of the same former employees as us, apparently heard some of the same allegations, but dismissed this evidence as just being part of an inexplicable “revenge mission” by “many” former employees.

We recognize that as an investment manager, it must be humiliating to have uncovered evidence of accounting manipulation in one’s own due-diligence process, only to inexcusably ignore it, then later be faced with the reality that the allegations had merit. We regularly see this dynamic on the other side of our reports—long investors that refuse to acknowledge negative information staring them in the face, preferring instead to believe their initial positive conclusions. Sometimes managers are more inclined to protect their own egos than their investor capital.

Regardless, none of that justifies making wildly false allegations about our research process (accusing us of having “willingly misconstrued and misrepresented facts” or “most likely knowingly made numerous grave mistakes,” for example).

For this, Hindenburg Research is actively considering our own litigation options.

Disclosure: We Are Short Shares of Temenos AG (SWX: TEMN)

Legal disclaimer.

Use of Hindenburg Research’s research is at your own risk. In no event should Hindenburg Research or any affiliated party be liable for any direct or indirect trading losses caused by any information in this report. You further agree to do your own research and due diligence, consult your own financial, legal, and tax advisors before making any investment decision with respect to transacting in any securities covered herein. You should assume that as of the publication date of any short-biased report or letter, Hindenburg Research (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors has a short position in all stocks (and/or options of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of any stock covered herein declines. Following publication of any report or letter, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation, conclusions, or opinions. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Hindenburg Research is not registered as an investment advisor in the United States, Switzerland, or have similar registration in any other jurisdiction. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind – whether express or implied. Hindenburg Research makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and Hindenburg Research does not undertake to update or supplement this report or any of the information contained herein.

[1] On Temenos’ “2021 Capital Markets Day Webcast”  webpage , navigate to “Strategy and Vision” tab to view embedded video. 

[2] We note the mismatch in accounting year in India which runs from April 1 st to March 31 st , hence present 2023 financials alongside. Exchange rate 1 USD to INR = 75.7862 on March 31 st , 2022. The primary Indian subsidiary we refer to is Temenos India Pvt Ltd. Lakh = 100,000 in Indian numbering system.

[3] That is, net of totals at all 3 Indian group entities, presuming the entirety of these expenditures are considered R&D expenditures.

[4] The November 2022 press release discloses 850 clients using Temenos Infinity. The 2023 annual report discloses over 600 digital clients.

[5] The 2023 report also contains a footnote to try to explain away this change. “In this report and in the future, Temenos will focus its client number disclosure on those clients generating the significant majority of Temenos’ annual revenue, as well as client numbers across its core banking and front office platform, in an effort to better reflect the relevance of Temenos’ client base to its business performance. Previously disclosed total client numbers included a range of clients acquired as a result of M&A transactions contributing less to Temenos’ annual revenue.”

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Temenos soars after report calls Hindenburg claims 'inaccurate'

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Writing by John Revill and Miranda Murray; Editing by Clarence Fernandez

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Temenos soars after report calls Hindenburg claims 'inaccurate'

The report by the U.S. financial research firm "presented purported facts about Temenos in a distorted manner or out of context," the Swiss company said in a statement.

Hindenburg was not immediately available for comment outside U.S. business hours.

The report, released in February, wiped out nearly a third of Temenos's stock market value.

At the time Hindenburg said it had taken a short position in Temenos and alleged accounting irregularities and manipulated earnings at the company.

Temenos makes software that connects the client-facing part of banks with back-office processing departments.

Hindenburg also alleged that Temenos had secretly funded the purchase of its own software, citing public filings and interviews with former employees.

Temenos responded by appointing a special committee, including outside forensic accountants and lawyers, to carry out an examination.

It reviewed more than 100 million pages of data, visited Temenos offices and interviewed senior management.

"We did not identify any 'sham' partner deals, as alleged by Hindenburg," the investigation said.

There was also no evidence of deep discounts being offered to secure early licence renewals, while management's share sales were much lower than the level alleged by Hindenburg, the report added.

The inquiry also noted that Hindenburg was not an unbiased party, but stood to profit from the stock's decline due to its short position.

"The report has found that Hindenburg's Research's allegations were inaccurate and misleading," Temenos Chairman Thibault de Tersant said.

Petrus Advisers, an activist shareholder of Temenos said it expected the software company "to wake up and finally take legal action against Hindenburg."

Analysts were positive about the investigation's findings.

"This removes a major uncertainty factor with regard to Temenos’ business model, which we see as a positive development," said Christian Bader at Zuercher Kantonalbank.

Bank Vontobel said publication of the examination's results was an important step towards rebuilding investor confidence.

Also on Monday, Temenos said it was "hopeful" of being able to name a new chief executive in time for its upcoming shareholders meeting on May 7.

The newcomer would replace Andreas Andreades, who returned for a second stint as CEO in January 2023.