Monday, January 30, 2023

Proof That Twitter Still Works... A Short Seller Hits a Nerve and the Target Company Responds With Blather

By Herb Greenberg (View Archive)

I've been on Twitter for 15 years, and lately at times I've been feeling like things are different...

Ever since the new owner took over – you know who I mean, that guy who makes electric vehicles ("EVs") and spaceships – the vibe has been anywhere from wobbly to downright weird. I've found myself increasingly cycling in and out of engaging or even scrolling.

As it turns out, I quickly discovered, there is life outside the echo chamber.

Still, every now and then I get the urge to purge, and the former journalist inside me feels a need to say something – albeit in 280 characters or less.

That was the case last week, after activist short-selling firm Hindenburg Research published the lengthy results of its two-year investigation into India's Adani Group under the headline, "How the World's Third Richest Man Is Pulling the Largest Con in Corporate History." The report ended with 88 questions Hindenburg challenged Adani to answer.

Adani initially responded, saying that Hindenburg's report was "maliciously mischievous."

Hindenburg shot back with its own comment, which it posted on Twitter...

Source: Twitter/@HindenburgRes

I thought it was a good response, especially that last sentence, so I retweeted it, saying...

Source: Twitter/@herbgreenberg

Famed hedge fund manager Bill Ackman then took the baton and retweeted my tweet, adding...

Source: Twitter/@BillAckman

Ackman's retweet generated an enormous amount of news coverage, but the upshot is this...

My single retweet of Hindenburg – amplified by Bill's comments – went viral... and resulted in nearly 2 million views – the most ever – and thousands of likes.

And most of that came from India.

What's more, even today it continues, having taken on a life of its own and sparking the classic Twitter spits, spats, and trolls... It's quite the scene.

Here's the bottom line: For all its flaws, Twitter still works.

And if nothing else, as it relates to the Hindenburg report: While most Americans may have never heard of the Adani Group, most Indians have. And based on the Twitter response, it's now obvious: Hindenburg struck an awfully sensitive nerve.

But the story doesn't end there...

Over the weekend, Adani provided a more in-depth rebuttal to Hindenburg. Based on the quality of its work to date, I do respect Hindenburg's work... but I can't opine on the facts of either side because I haven't done the research.

However, I've spent decades reading company responses – some of them directed at me – and in my view Adani's rebuttal, as detailed as it may appear, raised further red flags.

It started with the classic effort at trying to discredit a short seller, in this case Hindenburg, by stating the obvious: that Hindenburg is short the stock. Never mind that Hindenburg itself discloses that at the top of its report, it went on with a flimsy attack on the short-selling firm's credibility based on its relatively young history. Among its wins, Hindenburg is perhaps best known for singlehandedly exposing fraud at the EV maker Nikola (NKLA).

But more than that, Adani included one specific sentence – written in bold face – that is the ultimate red herring, saying...

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.

Or as Hindenburg itself tweeted last night, as part of its rebuttal to Adani's rebuttal...

Fraud Cannot Be Obfuscated by Nationalism or a Bloated Response That Ignores Every Key Allegation We Raised.

Based on my experience, such claims are meaningless and all too reminiscent of how the CEO of one company I once wrote about eons ago (Media Vision) claimed I was trying to "rip apart the fabric of Silicon Valley" – or something very similar to those words, when he tried to have me pulled off the story.

He and his CFO went to prison.

And there's my favorite – "our auditors approved our financials." Adani came closest when it said...

We reaffirm that we are in compliance with all applicable laws and regulations. We are committed to the highest levels of governance to protect the interests of all our stakeholders.

The Adani Portfolio also has very strong internal controls and audit controls. All the listed companies of Adani Portfolio have a robust governance framework. The Audit Committee of each of the listed companies is composed of 100% of Independent Directors and chaired by Independent Director. The Statutory Auditors are appointed only upon recommendation by the Audit Committee to the Board of Directors. Adani Portfolio company's follow a stated policy of having global big 6 or regional leaders as Statutory Auditors.

As if Adani is going to say that it's committed to the lowest levels of governance? Oh, please!

Once again, I have no idea if Hindenburg got it right or wrong. What I do know is that when it comes to short reports, companies should stick to the facts. Anything more is blather.

Meanwhile, this market continues to make chumps of bulls and bears alike, but I come away with one simple observation...

This is not the time to get complacent, think you're smart, or confuse brains with whichever way the wind is blowing.

The below chart from my friends at Kailash Concepts, contained in this essay, says it best...

Source: Kailash Concepts

Put another way, if history even comes close to rhyming... cue the 😱 emoji.

As always, I look forward to hearing from readers...

Have you noticed a new vibe from Twitter? Are you using the platform any more or less since the Elon Musk takeover? Feel free to reach out via e-mail by clicking here.


Herb Greenberg
January 30, 2023

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