Bloomberg Law
Feb. 10, 2023, 10:00 AM

Adani Faces Tough Battle in Potential Hindenburg Research Suit

Matthew Bultman
Matthew Bultman

Adani Group is eyeing litigation against Hindenburg Research as it tries to right itself after the New York short-selling firm’s fraud allegations cost it billions—but the Indian conglomerate’s US legal options are limited.

Adani’s losses topped $110 billion in recent weeks, as investors dumped shares after the Hindenburg report. Adani Group has called the report “bogus.”

Companies targeted by short reports often look to respond by suing the report issuers. Those that follow through with litigation don’t have a track record of winning. The cases are hard to prove because they often hinge on defamation claims, and the First Amendment provides a strong line of defense for short-sellers, attorneys said.

“Such litigations are fact-specific but often boil down to courts balancing between protecting the right to offer opinion and permitting the ability to manipulate information for financial gain at a cost to companies and their investors,” Akin Gump Strauss Hauer & Feld LLP’s Joseph Sorkin said.

Adani’s situation spotlights legal challenges in dealing with short-seller reports that deal blows to companies’ fortunes. But other recent examples also underscore companies’ continued wrangling with an investment research subsector that enjoys the same freedom- of-speech rights afforded broadly to media companies.

Biotech company Cassava Sciences Inc. sued Quintessential Capital Management LLC and other short-sellers in late 2022 for defamation and conspiracy to defame, alleging a smear campaign that wiped out $2 billion in market value. The case is still pending.

LifeMD Inc. is also suing Culper Research over an alleged “short and distort” scheme. A Pennsylvania federal judge in 2021 refused to dismiss legal claims for defamation and deceptive trade practices, among others.

Companies that believe they’ve been the target of a manipulative scheme still might decide not to bother with a lawsuit. Litigation can breathe new life into the short-seller’s allegations and the cost to take a case to judgment may not be worth the payout, attorneys said.

Strong Protections

Hindenburg said it uncovered evidence of accounting fraud, stock manipulation, and money laundering at Adani, in what the research firm called an “egregious example of corporate fraud.” The report wiped out $117 billion–or almost half of Adani companies’ value, Bloomberg News reported this week.

Adani’s group head of legal, Jatin Jalundhwala, said after the report’s release that the conglomerate was evaluating US and Indian law “for remedial and punitive action” against Hindenburg. Adani Group didn’t immediately respond to a request for further comment.

If Adani launches a defamation case against Hindenburg that moves beyond an early stage, it would have to navigate discovery requests from Hindenburg’s attorneys as part of that company’s defense. Hindenburg said it would welcome any litigation, and has “a long list of documents we would demand in a legal discovery process.”

Companies have relied on various legal claims to sue short-sellers, including unfair competition and violation of the federal Racketeer Influenced and Corrupt Organizations Act.

Defamation, however, tends to be at the heart of such cases.

Companies “bring a defamation case because there’s not a securities litigation solution in many instances,” Cozen O’Connor attorney Michael de Leeuw said.

Activist short-sellers like Hindenburg can fill a void in the market, exposing corporate fraud or other malfeasance.

But there have been a growing number of calls in the US, including from academics, for more scrutiny of short-sellers over concerns of trading abuses and market manipulation. The US Securities and Exchange Commission last year proposed a rule that would require certain investors to disclose more information when they short a stock.

Defamation cases are generally difficult to prove because of the protection of the First Amendment. That’s especially true when the plaintiff is a public figure, like a publicly traded company typically would be.

While the optics of suing a short-seller for defamation can be different than suing a news organization, “the reality is, from a legal perspective, the protections apply no matter what,” Davis Wright Tremaine LLP attorney Ambika Kumar said.

Facts, Opinions

To be sure, short-sellers have taken their lumps in court.

Farmland Partners sued author Quinton Mathews, who published under the pseudonym Rota Fortunae, after an article drove Farmland’s share price down. As part of a settlement, Mathews in 2021 said the article contained inaccuracies and false allegations. Farmland is still pursuing a case against a hedge fund it accuses of working with the author.

But that kind of result is unusual.

Muddy Waters LLC, a firm founded by well-known short seller Carson Block, convinced a judge in 2022 to quickly dismiss a lawsuit brought by Solutions 30 Eastern Europe SRL under a California law designed to protect free speech. The complaint said Muddy Waters anonymously published a report that linked Solutions 30 to criminals and money laundering.

Hindenburg itself has beaten at least two defamation lawsuits in New York state court, including one brought by Bollywood film distributor Eros International PLC.

Dismissing the case, a judge found the disputed statements from the report were protected opinion. Hindenburg’s report “expressed opinions ‘accompanied by a recitation of the facts’ on which they were based,” the judge said. A state appeals court affirmed the ruling in 2021.

“That’s where, in some of these cases, the rubber hits the road—did you set out the factual basis for the opinion statement that you’re making?” de Leeuw said.

Short report authors appear to have taken notice. The reports often include detailed explanations and facts to support the financial analysis, with links to supporting documents, such as regulatory filings and court documents.

Even if there are false statements in the reports, a publicly traded company likely will have to show that the author knew the statement was false or that they acted recklessly. The false statement also has to matter.

“A report might get minor details wrong, just like a news report might get minor details wrong,” Kumar said. “But if the gist of the story, if the impression left on the reader, is no different, you can’t assert a defamation claim on the basis of that inaccuracy.”

Long Game

Suing can be a calculated risk, even when a company believes there’s a viable claim.

Directors may be concerned about breathing new life into the allegations, and drawing additional attention to the report’s claims.

Litigation also involves expensive fees, and the company may be unlikely to recover all its losses, even if it wins.

Still, “a company like the Adani Group, I can’t imagine they’ll be deterred based on litigation expense,” Avi Weitzman of Paul Hastings LLP said. “They need to act decisively in order to right the ship.”

There are options beyond lawsuits that companies in these situations can consider, Weitzman said. They can consider a referral to the Justice Department, SEC, or foreign regulators. Other strategies can include hiring public relations experts and private investigators.

“Short-seller reports can be very impactful and things can turn south very quickly for companies,” Weitzman said. “But it’s really a long game and they need to have a long-term strategy to deal with this.”

To contact the reporter on this story: Matthew Bultman in New York at

To contact the editors responsible for this story: Roger Yu at; Keith Perine at

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