How a Hindenburg report brought down US EV maker Nikola’s stock price from USD 66 to USD 2.51
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By Tapan Moharana
Biznextindia : US-based financial research firm Hinderburg Research is currently in news for its controversial report on Indian conglomerate Adani Group. After the publication of the report, the cumulative wealth of Adani group companies has eroded over 48 billion dollars. Though the Gautam Adani-led company has come up with a 413-page response about the allegations, the shares of Adani group companies, barring Adani Enterprises, have continued to decline.
However, this is not the first time, the company has made exposes about big corporates. According to publicly available date the company has released reports about more than 15 companies. Some of its notable exposes include those on electric vehicle maker Nikola, software company Squarespace, WINS finance, SC Worx, Predictive Technology Group, smile direct club and health and wellness company Herbalife.
In these instances, Hindenburg’s research and exposes led to significant drops in the stock price of the target companies and prompted regulatory investigations.
In 2020, when the whole world was struggling with COVID-19, the firm released reports on as many as seven companies.
One such notable reports is on US-based commercial electric vehicle maker Nikola. The report ‘Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America’ was published by Hindenburg in September 2020.
In this report the research firm claimed to have “called out a vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors.”
“We have gathered extensive evidence—including recorded phone calls, text messages, private emails and behind-the-scenes photographs—detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception at a public company, especially of this size” said the report.
Later, the founder of the electric truck maker Trevor Milton was convicted by a US jury for alleged fraud activities. Incidentally, the stock, which was trading at around $66 in June 2020, is currently (30 January 2023) at USD 2.51.
Conflict of Interest ?
Conflict of interest refers to a situation where an individual or organization has competing interests, loyalties, or obligations that can impact their decision making. In the case of Hindenburg Research, the firm’s focus on short selling and its business model of profiting from declining stock prices creates a potential conflict of interest.
Hindenburg’s clients are primarily short sellers who stand to benefit from the stock price decline of the companies the firm investigates. As a result, there may be a perception that Hindenburg’s exposes are motivated by the desire to profit from its clients’ short positions, rather than by a genuine desire to expose fraudulent or overvalued companies.
This conflict of interest can call into question the impartiality and credibility of Hindenburg’s research and exposes. While Hindenburg has published some notable exposes that have led to significant declines in stock prices and prompted regulatory investigations, investors should be aware of the potential conflict of interest and consider all available information before making investment decisions based on Hindenburg’s research.