Days after US short seller Hindenburg Research announced its shutdown, documents from a Canadian court case have revealed explosive details on how it allegedly colluded with a hedge fund.
The documents reveal that Hindenburg's founder, Nathan Anderson, along with other short sellers, regularly received information from a Toronto-based hedge fund called Anson Funds. The details of the documents were first reported by BNN Bloomberg, and later, a Canadian portal called Market Frauds published an email trail between Anderson and Anson citing same documents.
According to Bloomberg, the defamation case in the Ontario Superior Court of Justice involves Anson, a researcher, the operator of an investment website, and others.
Anson Funds Chief Moez Kassam admitted in court filings that his firm shared their research with "a wide variety of sources", including Hindenburg’s Nate Anderson, Muddy Waters’ Carson Block, and Citron’s Andrew Left.
Bearish Report on Canadian Firm
In one case, Anson Funds and Hindenburg Research shared information on a Canadian ride-sharing firm Facedrive. Later, Hindenburg published a 26-page report on the firm claiming Facedrive had overstated its capabilities while struggling during the pandemic.
The report led to the stock collapse of the firm, and it had to rebrand itself and settle a complaint with the Canadian regulator.
The court documents show that first, an Anson analyst pushed a Facedrive partner to confess that the firm was not able to meet targets, and later they shared this information with Hindenburg's founder. The hedge fund also told Anderson how the report should be arranged, what the stock price target would be, and asked him to keep Anson's name anonymous.
Anderson told Bloomberg that his short-selling group maintains "editorial independence" while receiving "hundreds of leads each year from diverse sources.”
The Market Frauds portal claims that both Anson Funds and Nate Anderson have committed "multiple counts of securities fraud" and that when it reaches the SEC, they will be charged.
While sharing research information among short sellers may not be illegal, undisclosed participation by hedge funds is considered securities fraud, according to the SEC. Anson Funds has already been fined by the SEC in June last year for failing to disclose payment to publish a bearish research report.
Hindenburg in Trouble After Closing Shop?
Last week, Nate Anderson announced the closure of Hindenburg Research after eight years of work, claiming that their efforts led to "nearly 100 individuals being charged civilly or criminally by regulators."
A 2021 New York Times report said that "about 10 deep-pocketed investors bankroll" some of Hindenburg's operations, and some also take short positions when Hindenburg publishes a report against a firm. Hindenburg has been linked to several hedge funds in the past as well.
In July 2024, India's market regulator, Sebi, said that Hindenburg shared its report on the Adani group with at least two hedge funds before publishing it online. Sebi named New York-based hedge fund manager Mark Kingdon and a broker associated with Kotak Mahindra Bank as beneficiaries of Hindenburg's actions. The market regulator accused Hindenburg of collusion using non-public and misleading information.
Hindenburg's report accused the Adani group of stock manipulation and illegal use of offshore tax havens. This led to billions of dollars in wealth being wiped out from shareholders of Adani group companies.
