Hindenburg Shutdown Brings Conflicts of Interest in Activism to the Fore

The announcement by Nate Anderson, the CEO of Hindenburg on 15th January 2025, was a real bolt from the blue, given that there was no prior indication.  Hindenburg was started by Nate Anderson in 2017 and therefore, has been in operation only for 8 years.  Interestingly, the name ‘Hindenburg’ was based on the Hindenburg disaster, the latter being an airship accident that occurred in the US on 6th May 1937.  The LZ129 Hindenburg was a German commercial passenger carrying rigid airship which met with a catastrophic accident and burst into flames while attempting to land, killing 35 out of 97 passengers and crew members on board.

The website describes Hindenburg research as specializing in forensic financial research and mentions that “the most impactful research results from uncovering hard-to-find information from atypical sources”; it further goes on to say that it looks for situations where companies may have a combination of accounting irregularities, bad actors in management, undisclosed related party transactions, illegal/unethical financial reporting practices or undisclosed regulatory, product or financial issues.

One of the key aspects of Hindenburg (which of course, the website does not mention) is that they would typically short-sell stocks which are the subject matter of the research, before the research is released, and therefore, clearly there was a financial interest linked with the research and the timing of the release.  In this context, clearly one might say that it was sailing close to regulatory winds.

Hindenburg has done about 40 research reports, but one of the first was a company controlled by Indians (namely, Eros International) and then, over a period of years, many others, but the majority were American companies and of course, relatively recently, the Adani group also.  A particularly impactful research report was in 2020 on a company called Nikola Corporation which was an electrical vehicle company and Hindenburg’s allegation was that it had greatly overstated its technological capabilities and this report led to a crash in Nikola’s share price and triggered regulatory investigation.  Another sensational one was taking on Carl Icahn, (curiously a Wall Street activist himself) where an investigation into Icahn Enterprises led to the company shares plummeting by more than 20% and forcing Carl Icahn to restructure his personal loans.

The timing of the announcement of the Hindenburg research company shutdown is very curious, coming shortly before President-Elect Trump takes over on 20th January 2025.  Given the grey regulatory zone in relation to the research vis-à-vis short selling, regulatory pressures could also have been a major trigger, although Nate Anderson’s statement seems to suggest that there is no real trigger; he has also mentioned that the shutdown had been planned for several months and the plan was to wind up ‘after we finished the pipeline of ideas we were working on’.

Shareholder activism has come to stay, and in many cases, it is a very good check and balance on corporate governance on a variety of matters, including the ones listed on the Hindenburg website.  However, when shareholder activism is so directly linked to financial gain, there is clearly a conflict of interest and one does not know where the activism ends and the almost mercenary angle begins.  In any case, with the announced shutdown of Hindenburg, a short era of a peculiar activism platform has ended; one doubts whether another Hindenburg will emerge on the corporate scene.