Wall Street's short-selling institution, Hindenburg Research, which only has a handful of researchers, has made significant waves this year. It has targeted companies owned by three magnates, cumulatively erasing more than $170 billion of wealth.
In less than eight months this year, it's estimated that due to the ripple effects of Hindenburg's short-selling, companies associated with India's former wealthiest man in Asia, Gautam Adani, Silicon Valley magnate Jack Dorsey, and Wall Street's "Wolf King" Carl Icahn saw a combined market value drop of $173 billion. These losses translated to a staggering $99 billion reduction in personal wealth for the trio.
Since January, the name Hindenburg has been making headlines. As reported by Wall Street News, on January 24th, Hindenburg released an extensive short-sell report, slamming Adani's enterprise, Adani Group, labeling it as "the biggest scam in corporate history." The report accused the multibillion-dollar Adani empire of shamelessly manipulating stock prices and committing financial fraud. Consequently, Adani's stocks and bonds were sold off en masse, erasing over $58 billion of net assets in just eight days. The value of the Adani Group plummeted by over $100 billion in a week, triggering a wave of short-selling throughout the Indian stock market.
In early May, Hindenburg publicly shorted Icahn Enterprises (IEP), owned by Carl Icahn. The firm's report alleged that IEP had been using funds from new investors to pay interest and short-term returns to older investors, likening their practices to a Ponzi scheme. It also alleged collusion between Icahn Enterprises and investment bank Jefferies. Following the release of Hindenburg's report, IEP's stock price dropped by over 40% in just four days, shedding over a third of its market value in less than a week. Adding to their woes, the Department of Justice launched an investigation in the aftermath of the report. IEP's stock price once plummeted by more than 20% in a single day.
On the previous Friday, IEP unexpectedly announced in its financial statement that it would be slashing its quarterly dividend by 50% to $1 per share, seemingly acknowledging the high dividend claims made in the short-selling report. On that same day, IEP's stock price plummeted nearly 40%, closing with a decline of over 23%.
In comparison to Adani Group and IEP, Block Inc, a mobile payment company co-founded and currently helmed by CEO Jack Dorsey, had a relatively smaller market capitalization and appeared to be less adversely affected by Hindenburg's moves. In the week it was targeted for short-selling at the end of March, Block saw its share price decline by over 16%. Despite hitting a low in mid-May, as of last Friday, its share price had only declined by about 5% over the past month and less than 2% since the beginning of the year.
Market data indicates that the net short position on Block's stock declined in the second half of March but began to rise again a few days before Hindenburg's report was released, increasing by about 260,000 shares. By the time the stock price hit its lowest in May, the gains from this position were less than $5 million.
Media reports reveal that since 2020, Hindenburg has targeted around 30 companies. On average, the share prices of these firms dropped about 15% on the day following the release of Hindenburg's short-selling reports.
Commenting on the dynamics of hedge funds and active short selling, Professor Ian Appel of the University of Virginia's Darden School of Business noted that if a short-selling institution has a trustworthy track record in the past, they command high credibility, prompting the market to react to their moves.
