Authors: Shen Hui, Chen Changyuan

Source: Tookawa Investment Review

On March 23, 2023, shortlisted rookie Hindenburg Research (Hindenburg Research) suddenly sniped Cathie Wood (Cathie Wood)'s heavy-duty stock Block, and the stock price instantly plummeted 15%.

The US Alipay Block is not only Twitter founder Jack Dorsey (Jack Dorsey)'s sharp sword to break into the coin world, but it is also Sister Mu Tou's most promising stock other than Tesla. Over the past year, Sister Mutou's flagship product, ARKK, has dropped 70% from a high point, like a dream.

How much does Miss Mutou love it? On the day the Block was attacked by air raids at Hindenburg, in response,She unusually reduced her position in love with Tesla by 26.8 million dollars, and turned her head into Block's position by another 20.9 million dollars.

Hindenburg accused Block of suspected fraud, seriously exaggerating the number of users and underestimating customer acquisition costs. 40%-75% of monthly active users had fake accounts, and a large number of ghosts were named “Elon Musk” and “Donald Trump.”

The Hindenburg team discovered that by registering an account under the name “Trump,” they could not only receive and receive payments normally, but also happily issue credit cards in the name of the former President of the United States.

Block has powerful functions, microfinance, stock trading, and can even be used for flash transactions using Bitcoin. It has so many features that it can be used to play more than Alipay+WeChat Pay combined.

However, its usage scenarios seem very “limited” — “Block's Cash App often appears in rap songs, but it's all fraudsters, drug dealers, and killers who use it,” said Nathan Anderson, founder of Hindenburg. According to data from various sources, Cash is also the payment method with the highest usage rate for one-night stands in the US.

Anderson announced to the world that Block still has room to fall 65%-75%. This is the beginning of a resurgence of the crypto market after Hindenburg overthrew India's richest man.

Established in 2017, Hindenburg is undoubtedly the hottest newcomer to shorting on Wall Street in recent years. Since 2020, as long as the company he has been watching, the average drop in shorting on that day is as high as 15%. Whether it's Nikola, “Tesla in the trucking world” or Musk's Twitter when he announced the acquisition, every successful sniper by Hindenburg makes headlines in the New York Times.

This shorting agency, named after the World War II “German balloon” air crash that caught fire over the US, aimed its sights on all the problem companies in the world.

Like many shorting agencies, Hindenburg's account is a famous financial giant in the US. It has 570,000 Twitter followers and often makes all kinds of dangerous remarks. The same one that made investors' hearts flutterBLUE ORCA CAPITAL (BLUE ORCA CAPITAL), GRIZZLY RESEARCH (Grizzly Research), and Wolfpack Research (Wolfpack Research)When shorting practice bites the difference between life and death, Hindenburg prefers to go big and get rid of behemoths that far exceed his own in size, whether they are the richest people in the country or the market leader.

Such a young shorting agency is rapidly taking Wall Street by storm as a dark force, with great momentum to replace established bears such as Citron, Muddy Water, and J Capital. It's like a balloon hovering 30,000 meters above Wall Street, staring at every shady corner of the financial market.

01. The Dark Tracker

A lot of the time, Anderson looked more like an investigative journalist than a classic hedge elite guy.

He grew up in a small town and had an average family. While attending the University of Connecticut, he not only helped the UN ambassador conduct research on Middle East politics, but also traveled to Jerusalem to work as an ambulance doctor for 400 hours. After graduation, Anderson joined FactSet to provide consulting services for investment companies. Relying on fishing time at work, he quietly started a side job — searching for fund shady scenes online and anonymously spreading short selling news on US Snowball Seeking Alpha.

After all, his idol is Harry Markopolos (Harry Markopolos), who reported the Madoff Ponzi scheme, and finding scams is his greatest hobby.

Paddling for a long time caused dissatisfaction among employers. After spending three years at FactSet, Anderson jumped to Blue Heron Capital, then soon skipped Equity Capital for the same reason. In the end, he discovered that working part-time was not good for carrying out investigations. It was better to be the boss himself, so he founded Clarity Spring, hoping to start a business by giving rewards.

Because in the US, anyone who discovers corporate fraud and reports it to the Securities Regulatory Commission can get up to 30% of the fine, of which 5%-10% is paid to the person who broke the news.

After establishing the Hindenburg Study in 2017, Anderson's life didn't get better. At first, they mainly sold unpopular tickets, but soft persimmons weren't as easy to pick as I had imagined.

Hindenburg shorted a company that specializes in veterinary medicine and discovered that the company did not do business properly and switched to coin trading, but they didn't expect it to start a second growth curve instead, and the stock price tripled. Anderson lost so little money that he and his pregnant girlfriend almost got bombarded out of a rental house in Midtown Manhattan.

In order to protect his family, Anderson carefully studied methods to increase shipments in the market, tried to uncover some small companies that were not regulated, and even sneaked into a sales meeting pretending to be injured in order to hear reports from biotech companies. The company soon reached a turning point. Hindenburg sniped on a cannabis company and plummeted 30% after the shorting report was released.

Anderson felt he had run through the business model to support his addiction to fraud research. As soon as the stock crashes, his short position will turn into an ATM.

At first, Hindenburg was just Anderson, but now he employs around 10 employees, including former reporters from agencies such as Bloomberg and CNN. It took them six months or more to complete a short report, which required reviewing lots of materials, talking to company employees, and even finding private investigators. There are about 10 mysterious money owners who provided research funding for Hindenburg and made a deposit to go short.

Anderson is almost fanatical about uncovering corporate scams, showing cynicism in his persistence: he hates the social system manipulated by elite chaebol, and ordinary people who don't know anything are cut off, and Hindenburg's mission is to uncover and rely on the power of the people to overthrow those behind the scenes.

“You have to go all over the world to find what people overlook.”Anderson told the New York Times reporter.

Strangely enough, as a big bear, Hindenburg avoided getting involved with stock speculation. He wanted his official website to become a financial research news platform.

Anderson understood that whether it was Chanos who overturned Enron's Chanos or Michael Burry, who was shorting the subprime mortgage crisis, if he wanted to make a name for himself in the short run, he had to make big news --Become a giant killer and use intricate details to dismember them.

At that point, Nikola, bathed in a new energy bubble, whistled past Anderson.

02. Bubble needle

On February 9, 2020, the S&P 500 index reached a record high, but Anderson was constantly commenting on the outbreak and was very anxious.

“I'll leave New York when there are 10 confirmed cases,” he recalled. “I think I left when the 7th case appeared.”

Anderson retreated to an Airbnb homestay near his hometown in Connecticut. Then the pandemic began to impact the economy, and US stocks recorded their biggest one-day decline since 1987. The Federal Reserve opened the door to the macro-world, printed trillions of dollars, the stock index quickly broke through previous highs, and countless retail investors traded stocks at home.

In addition to being the main reason people lose money, the bull market is also a breeding ground for concealing scams.

While quarantined in the countryside, Anderson wrote to Nikola founder Milton's tweet: “Nikola, a new energy truck company, surpasses Ford and Fiat Chrysler in market value, closely follows GM...” Basically, he beat the two biggest car manufacturers in history, which produced millions of cars, and Nikola hasn't sold a single car yet.

Milton is even worse than Teacher Jia. Nikola relies on hydrogen fuel cells to generate electricity and claims to be able to ship 36 tons of cargo over 1,900 kilometers without stopping to refuel.

“There are only two people in this world who know electric cars better than anyone else,” Milton once said, “Elon and myself.”In the first nine months of 2020, Milton sent 2,283 tweets, an average of 8-9 tweets per day, constantly enticing retail investors to buy themselves.

With the exception of teachers on Weibo, this tireless desire to share is hard to associate with anyone else. Milton's various actions aroused Anderson's suspicions, and he secretly got in touch with a lawyer who had insider information about Nikola.

He learned that Nikola's technical director was Milton's younger brother. Before he joined Nikola, he was just a migrant worker paving the floor in Hawaii; he also learned that before Nikola One debuted, workers scrambled to assemble it with ready-made parts from hardware stores because of a lack of gears and motors; until the Nikola One debuted, there were no batteries or hydrogen energy in the car; it was just an empty shell, and even the surging electricity for the lights was provided by a plug at the bottom of the stage.

What was most exciting was the bizarre video of Nikola taking down Nikola's Mercedes-Benz on the road to Hindenburg by a former employee with the Twitter ID “Nikola Insider”:The truck glides through the countryside on a long downhill road. You only need to adjust the shooting angle to make the car look like it is driving autonomously on a flat road, or even an uphill road. A car with an empty stop can reach 56 mph on that road.

By the way, even the doors are stuck to the body of the car.

At a time when Hindenburg's short sale was about to come out, a female reporter claiming to be a “Russian spy” wanted to reveal Nikola's fraud to Anderson and his team. During an offline meeting, Anderson discovered it on the spot as Milton's person. At the same time, intelligence agents employed by Anderson also targeted the former NYPD detective who was secretly photographed from afar.

They were employed by Milton to get the investigators out one by one, but unfortunately they all fell into Anderson's trap.

The details of the intense investigative news were brought together into the Hindenburg shorting report. Perhaps Anderson himself didn't know that America's Telecom tyranny was about to end by himself.

In 2020, Nikola's stock price, which was listed backstage by SPAC, rose nearly 900% within half a year. The insane stock price was described by Chinese shareholders as America's “Tianshan Biotech”. However, all of this joy was erased by a short report by Hindenburg — Milton resigned, the US Securities Regulatory Commission accepted his fraud charges, and Nikola's stock price fell 98.6% from a high point.

As a result of this campaign, Bullock, the founder of Wall Street's top Muddy Waters (Muddy Waters), gave high praise to his descendants: “Hindenburg discovered Nikola I've been looking for, but I haven't found any problems. He just kept his head down, kept learning, and kept improving, and I can't help but admire his perseverance.”

03. Overthrow India's richest man

After destroying America's new energy giant “juxtaposed with Tesla,” Anderson did not stop shorting. Schindenburg's Led Zeppelin quietly flew over the Pacific Ocean and landed on top of India's old energy hegemon, Adani Group.

Before meeting Hindenburg, Adani's wealth grew more than any billionaire on the planet. His net worth soared by 70 billion US dollars in 6 months, reaching 158 billion US dollars, making him the second richest person in the world.

His industrial reach has penetrated into all aspects of India's energy, ports, and logistics, and Adani has a close relationship with Modi --Adani's business empire continues to help Modi get to the top of his political record, and from time to time, Modi has given Adani the green light to his expansion.

In 2022, the coal business became Adani's money printer. India's domestic coal prices soared from 50 US dollars/ton to 400 US dollars/ton within a year, benefiting from a seven-fold increase in coal. Some of Adani's listed companies have accumulated a cumulative increase of more than 1000% since 2020.

Seemingly powerful enough to be unshakable, India's Li Ka-shing was devastated in Anderson's eyes. Just Google it and you can find quite a few loopholes:

Of the 7 listed companies in the Adani Group, 5 had a liquidity ratio of less than 1, 4 had negative free cash flow, and 1 even changed 5 CFOs within 8 years. It is clear that there are 578 subsidiaries of Adani, yet there are no well-known and reliable audit firms to check financial data and appoint a 20 to 30 year old rookie auditor to handle the work of listed companies.

The more he investigated Anderson, the more excited he was. First, he discovered that most of the group companies violated the SEBI rules of the Securities Regulatory Commission of India — public ownership was less than 25% of the rule.

In other words, most of Adani's companies are stock companies.

Offshore shell funds under Adani's administration have blinded SEBI. The role of these shells is to act as public shareholders, mostly “three no's” funds:There is no basic information, no news reports, no diversified investment, and a large number of Adani shares have been held over a long period of time.

What is even more doubtful is that in 2007 SEBI sued Adani for dealing with India's Xu Xiang Ketan Parekh, but Ketan Parekh went in, and Adani settled after only paying 26,000 US dollars. In 2021, SEBI once again examined the relationship between the offshore fund and Adani, but it was just a matter of going through the motions.

As a result, Anderson communicated with a former Mauritian trader and learned that several shell fund companies in Mauritius cooperate closely with SEBI officials. SEBI not only knows everything, but is also a participant. To the end, Anderson went back and forth from Adani's Twitter post and discovered that 38 of the people in charge of the shell fund were Adani's family and friends.

After accumulating meticulous investigative evidence one by one, Anderson can basically determine that the Adani Group has been involved in stock manipulation, foreign money laundering, and financial fraud for decades, creating a false boom in the Indian stock market.

Following that, Hindenburg presented a 100-page shorting report, claiming that Adani's company had 85% downside from a fundamental point of view alone.

Just one week after the report was released, the Adani Group's market capitalization evaporated by 100 billion dollars, and Adani's own wealth shrunk by half.

Sadly, Anderson listed Adani's earlier scandals. Although every allegation had detailed investigation records, including bank statements, emails, witness statements, and invoices, almost all arrests were thwarted and dismissed by mysterious forces.

Anderson reluctantly stated in the report:“The reason why Adani Group is able to commit large-scale, blatant fraud in broad daylight is largely because investors, journalists, citizens, and even politicians are afraid to speak out for fear of retaliation.”

He understood in his heart that he was not only fighting against the huge Adani empire, but also SEBI, and even senior Indian leaders.

As a result, India's Ministry of Home Affairs is preparing to investigate Hindenburg and his Indian advisors. The Indian media listed Anderson as an anti-Indian person, compared the act of shorting Hindenburg to Soros's campaign to short the Thai baht in 1997, and relied on “looting” Indian citizens to profit.

Anderson probably already knows that under this big hat, everything is probably a vicious battle with no end or victory.

04. End

In recent years, well-known domestic shorting agencies have actually been far less successful than people think.

Grizzly Research (Grizzly Research) becomes an air connoisseur, BLUE ORCA CAPITAL (BLUE ORCA CAPITAL) shorts flying cranes, Wolfpack Research (Wolfpack Research) shorts magic tricks... they are all very sloppy.

Some have ignored the problem that some enterprises outsource their employees and do not pay social security; some have overlooked the difference between the CCTV suite and the nine and fourteen CCTV units of advertising fees; others have described China's four major municipalities directly under the Central Government as going north to shen.

To a certain extent, many Wall Street shorting rookies not only lack understanding of China's national conditions, but they also lack basic professional ethics.

You know, Muddy Water Ruixing's report mobilized 92 full-time employees and 1,418 part-time employees of Lucky to provide internal information, and successfully obtained surveillance from 981 stores. The video evidence took 1,160 hours; Hindenburg exploited Adani's nepotism with the government in an investigative newslike manner, searching for evidence of Nikola's fraud in an “indiscriminate” manner.

Also a rookie short, the biggest difference between Hindenburg and his “zoo” friends is that when everyone else picks stones from the eggs of the Chinese giant's stock, Hindenburg focuses on shorting some obvious mistakes.

Whether it's Nikola or the Adani Group, it often plays the role of the kid who “doesn't know if the sky is thick” in front of the emperor, and others have more courage to say the phrase: “He really doesn't wear any clothes!”

Perhaps there are no people in this world who want to go short; it's just that there are more people who are deceiving them, so there are people who are shorting them.

Editor/phoebe