When Nathan Anderson tells stories, companies crumble

The activist investor behind Hindenburg Research is doing the work once reserved for investigative reporters (and making millions in the process). Has he stumbled on a new model for holding corporations to account?

27 Apr 2023
Written by
Paddy Manning
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11 min

Illustration by Jarett Sitter

Everyone makes New Year’s resolutions, but not many of us can tick them off within weeks. On January 3, Nathan Anderson, founder of the forensic finance firm Hindenburg Research, tweeted that his 2023 resolution was to “expose some of the biggest frauds and financial charlatans in the world.” His fifty thousand followers didn’t have to wait long.

On January 24, in a Twitter thread viewed more than a million times, Hindenburg accused the world’s then third-richest man, India’s Gautam Adani—and the sprawling industrial conglomerate he controls—of committing “The Largest Con in Corporate History”. As business headlines go, it was about as eye-catching as it gets, the sort of hyperbole usually reserved for Daily Mail hatchet jobs and clickbaiting YouTube thumbnails. But the outsized claim was backed by an exhaustive 30,000-word, 100-page report, released to investors before US share markets opened that day.

Within ten days, Adani Group companies lost more than $US130 billion in market value as their share prices halved, and the private fortune of founder and chairman Gautam Adani plunged by more than $58 billion. Adani accused Hindenburg of using selective misinformation to mount a baseless attack, put out a 413-page rebuttal of the claims and hired expensive lawyers. Yet Adani shares kept falling.

Adani’s troubles must have seemed a long time coming for the Australians watching online. While the company wasn’t well known to US investors, Adani Group had a huge profile in Australia, where its controversial Carmichael coal mine, which opened in 2021, had made it something of a national bête noire. For years, Australian journalists, activists, lawyers and regulators had campaigned to stop the Indian conglomerate, exposing not only its poor environmental record but its supposed economic unviability. And for years, Adani seemed unstoppable. Until January 24, when Anderson shot off his tweet, and the Adani fairy tale came crumbling down.

How had Hindenburg succeeded where so many other campaigns, investigations and legal challenges failed?

Anderson guards his privacy jealously, and there is scant detail online about his life outside Hindenburg. He is thought to be in his late 30s, an age borne out by the photos accompanying the few magazine profiles that have been written about him, and he runs Hindenburg from a secret office in midtown Manhattan—no address, no phone number—giving the firm an air of mystery befitting its vigilante-like reputation.

What is on the record about Anderson’s life doesn’t at first glance look like the biography of a natural-born corporation killer. The son of a professor and a nurse, Anderson graduated with a degree in international studies from the University of Connecticut, then headed to Israel to work as a paramedic. Sometime after that, he landed a job in the finance industry, connecting hedge funds with affluent clients. It was in this role, Anderson later told The New York Times, that he unearthed his passion to “find scams”. In 2014, while looking into the holdings of a potential client, Anderson came across some investments he thought looked suspicious. When the 67-page report he wrote up failed to raise the ire of his bosses, Anderson took it instead to the media. And when the media failed to take it up, he took his findings to the US Securities and Exchange Commission (SEC). Not long after, the FBI raided the potential client’s office, and two of its executives were later convicted of securities fraud.

Anderson had approached the SEC because it was, in his mind, the right thing to do. But he had an ulterior motive as well. The SEC offers whistleblowers a 30 per cent cut of any fines resulting from their whistleblowing, and Anderson had hoped to make a business out of his efforts. But when he saw how slowly the authority moved—he still hasn’t received any money for his 2014 efforts—he decided to go it alone. Under this new model, Anderson would dig into dodgy-looking companies, then bet against them on the stock market—a practice known as shorting, where bets are made that a company’s share price will fall, rather than rise.

Most successful stocks are built on a growth story. Short sellers aim to puncture a company’s success with a counter-narrative.

In 2017, Anderson made his shorting enterprise official by founding Hindenburg Research. The company was named after the infamous airship that exploded in 1937, which his website describes as “the epitome of a totally man-made, totally avoidable disaster”. Today, Hindenburg looks for accounting irregularities, bad actors, undisclosed related-party transactions and illegal or unethical business practices. Operating from that secret New York office, the firm employs a small team of financial analysts and journalists, poaching writers from Bloomberg and CNN. As Anderson told New York Magazine, he hoped to turn his firm into a platform for the kind of financial investigative journalism that legacy media have largely abandoned.

The business world may look like it runs on pure mathematics. But storytelling plays an important role, too. Most successful stocks are built on a growth story—a bold vision of a changed world. Short sellers, by contrast, aim to puncture a company’s success with a counter-narrative. Their goal is to compel investors to press the panic button and sell out. It shouldn’t come as a surprise, then, that Hindenburg has an eye for an unforgettable headline or hard news angle. An early Hindenburg target, Canadian marijuana grower Aphria, was a “shell game with a cannabis business on the side”; listed green stock Bloom Energy was the “another tombstone in the Silicon Valley cemetery of dead unicorns”; teledentistry firm the SmileDirectClub was “moving fast and breaking things in people’s mouths”.

Looking back through the press clippings, one can identify a pattern: Hindenburg publishes allegations of financial foul play, the target’s share price tanks, the company complains of biased research—and sometimes sues—and class action lawyers and regulators begin their investigations. Hindenburg has not always succeeded—Anderson lost out betting against clean energy darling Bloom—but it has not lost a major lawsuit, and most of its targets have fallen by the wayside.

The firm’s breakthrough moment came in 2019, when it issued a damning report into electric truck maker Nikola. The company, which had been billed as the next Tesla, was briefly more valuable than either Ford or Chrysler, even though it had never sold a single vehicle. Anderson received a tip-off that a proof-of-concept video showing a Nikola truck hurtling down a highway in Utah had been faked: what the video really showed, the whistleblower claimed, was an engineless truck rolling down a hill in neutral. If true, exposing the truth would have huge ramifications. But Anderson needed proof. And so he and his team got to work.

In a now-famous example of open-source intelligence analysis, Hindenburg slowed the promotional video frame-by-frame and, using Google Street View, identified the exact location of the shoot in Utah. Then, Anderson hired a rental car and rolled it down the hill for two miles. By the time it got to the same location as the truck in the video, the car was travelling over 50 mph—a smoking gun rolling in neutral. In the report that followed, Hindenburg accused Nikola of an “intricate fraud” that extended far beyond the fake video. GM pulled out of its partnership and founder and chief executive Trevor Milton resigned in disgrace. He was later found guilty on three counts of fraud.

With Nikola, Hindenburg had cemented its reputation not just as a giant killer but as a publication with the headline-writing skills to rival any big-town copy editor. (The title of their report: ‘How to Parlay an Ocean of Lies into a Partnership with the Largest Auto OEM in America’.) The firm went on to have a field day through COVID, targeting companies profiteering from the pandemic. But the January 24 report into Adani took the scalp-hunting to a new level. The bombshell report took two years of painstaking research, during which time Hindenburg’s eight full- and part-time employees interviewed former Adani employees, and downloaded the entire company register of Mauritius to reveal that members of the Adani family were managing a vast labyrinth of offshore shell entities there, and allegedly using them to park stock in listed group affiliate companies, manipulating their share price.

Alex Turnbull, son of the former Australian Prime Minister, manages a Singapore-based hedge fund that has had dealings with an Adani subsidiary. Though he was not involved in Hindenburg’s Adani project, which he says took him by surprise, he is familiar with Nate Anderson’s research methods, and has swapped notes with him in the past. Turnbull says analysing the entire Mauritius registry “was just a level of above and beyond which staggered me”. His appreciation of Anderson’s team is mirrored by many in the finance industry, who praise the tiny firm for punching well above its investigative weight.

But while Hindenburg’s methods—recreating promotional videos, scrutinising an entire island nation’s company register—are certainly bold, it’s what they do with the information at hand that sets them apart. ABC investigative journalist Stephen Long, whose 2017 Four Corners program ‘Digging into Adani’ was cited in Hindenburg’s research, says Hindenburg’s real value is in its storytelling. “There wasn’t all that much that was new in the Hindenburg report,” he says, “but it wove the threads together and presented the tapestry in a very accessible way—the offshore structures, the multiple actions by authorities against Adani over its use of related parties in tax havens for dubious transactions, the over-leverage and money shuffling.”

Tim Buckley, the executive director of the non-profit Institute of Energy Economics and Financial Analysis, which has been tracking Adani for many years, agrees. “They've investigated a lot of allegations that have been around for decades, [and] they have leveraged a lot of work that's been done by a number of environmental groups in India, in Australia, and elsewhere, over decades, and then they've put it in a financial context.” He says the firm’s appetite for risk also sets them apart from traditional media or NGOs. "They were able to make allegations far more aggressively than I could or environmental groups could, because ultimately, they are happy to be sued. They've taken a massive position [and] they've made a shitload of money – that’s a technical term.”

Hindenburg cemented its reputation not just as a giant killer but as a publication with the headline-writing skills to rival any big-town copy editor.

Long points out another obvious difference between Hindenburg and traditional publishers like the ABC: by shorting its targets, Hindenburg stands to benefit financially if its reporting makes a mark. “I was one of the number of journalists who investigated Adani over these issues, including some fine journalists in India who’ve been pursued aggressively by Adani for doing so,” Long says. “But good journalism had a limited impact.” By taking a bet on the company’s misfortunes, he says Hindenburg was able to capture the world’s attention in ways traditional media coverage wasn’t. “In some ways, the fallout speaks to the limits of public interest journalism and the role that activist investors can play in financial markets and I guess more broadly in democracy.”

Which leads us to an unsettling prospect: in the brave new world of the internet, where legacy publications scramble for dwindling revenues and scrappy posters can command the attention of social media with a carefully worded tweet, might firms like Hindenburg one day replace independent media altogether? The answer, for now at least, appears to be no, as investors are subject to entirely different ethical, regulatory and legal constraints than traditional journalists. But there is no doubt that some successful short-sellers have struck upon a business model which can fund and defend so-called ‘opposition research’—which shares many characteristics of investigative journalism—and have found a potentially more lucrative way to give the resulting exposés real-world impact.

Alex Turnbull agrees that activist short sellers like Hindenburg have found a way to finance the kind of painstaking fraud investigations that journalists in a disrupted media landscape have struggled to undertake. “The simple math is, if it's a big enough fund, you can justify spending hundreds of thousands of dollars on research. Which is pretty hard [to justify] for one story [in traditional media], right? I think that's borderline public service.” An exposé in the mainstream media which triggers a government inquiry or regulatory response is but one model for reform of corporate abuses—a hedge fund report that triggers a shareholder stampede and management change is another.

But if activist investors really are the future of accountability, laws and regulations will have to change—especially in Australia. Former hedge fund operator Tim Murray, who founded the equity research house J Capital, and who was Labor’s candidate for the federal electorate of Wentworth at the last two federal elections, says that would-be Hindenburgs in Australia have often struggled to get their stories out. He blames the country’s defamation laws, which he says are too restrictive to allow local short-sellers to mount Hindenburg-like attacks. “Australians assume we have freedom of speech when we definitely do not have it,” says Murray, who went through several lawsuits before exiting the short selling business altogether.

Bronte Capital’s John Hempton, one of Australia’s most successful short sellers, goes further, describing Australia as a “crook’s paradise” for three main reasons, including a weak corporate regulator, and a very large “honey-pot” of two trillion dollars of lazy superannuation money from which investors are disengaged. Our defamation laws, which are tight compared with First Amendment protections for free speech in America, make publishing Hindenburg-style reports impossible here. “I know of money being stolen from Australians, but I can't say anything,” Hempton says. “All I can do is short a few stocks and make a few dollars. Because if I say anything nasty about the crooks, then I will get sued. And if I go and tell ASIC, they'll probably investigate me for trying to manipulate the stock.”

Hempton, who runs his own blog, offers a pointer to Australian activist investors frustrated at their inability to expose a local scam. “The one saving grace is that foreign firms in America can expose Australian fraud, and they get protected by the First Amendment,” Hempton says. Within days of our interview, his view was vindicated as Hindenburg launched another attack, this time against the Jack Dorsey-backed Block, Inc, owner of Afterpay, which is dual listed in the US and Australia.

A large part of Hindenburg’s success, then, is due not only to the quality of its research, but to its ability to get a story out live on multiple platforms watched by the market. “[Nate’s] really popular, and that makes a difference,” Murray says. "When investors hear Hindenburg have put out a short report, their first thought is, I’m getting out of the stock. This guy's usually right, and things don’t normally work out too well. To have that kind of sway off the back of a report and a few tweets—it’s the kind of influence modern press barons can only dream of.

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