All you need to know about the Adani Group scandal

India's second-largest conglomerate Adani Group run by Indian billionaire Gautam Adani, one of the world’s richest men has been sent on a downward spiral after an investment research firm accused the business empire of large-scale corruption and malfeasance.

In a January 24 report titled “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History,” New York-based investment research firm Hindenburg Research accused the conglomerate of engaging “in a brazen stock manipulation and accounting fraud scheme over the course of decades.”

Following the 100-page report, Adani’s net worth reportedly dropped by $6 billion overnight, and the tycoon’s wealth has continued to shrink since then.

No longer Asia’s richest man 

According to the Financial Times, Adani’s company lost a total of $91.7 billion in value since the Hindenburg Research report, passing the $90 billion mark on Wednesday. That means almost 40 percent of the empire’s shares were wiped off in just over a week.

Even a share offering of $2.5 billion in stocks by Adani Enterprises, which opened on January 27 and expired on Tuesday, in an attempt to extend the group’s investor base was overturned and couldn’t alleviate the crisis as buyers were repelled by the scandal.

On February 1, Forbes also announced that 60-year-old tycoon Gautam Adani was no longer the richest man in Asia and that his net worth had dropped to $74.7 billion, falling by over $50 billion after the scandal.

Adani lost his status to the chairman of Reliance Industries, Mukesh Ambani, who has a net worth of $83.8 billion.

Before the crisis, the combined market capitalisation of the Adani Group’s seven listed companies, including Adani Ports, Adani Wilmar, Adani Power, Adani Transmission, Adani Green Energy and Adani Total Gas, exceeded $218 billion.

READ MORE: Asia’s richest man was shorted by a US research firm. Chaos ensued

Offshore shell entities 

Hindenburg Research claimed that “Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal.”

Among many alleged malfeasances, the report uncovered that Vinod Adani, Gautam Adani’s elder brother, managed 38 offshore shell entities in Mauritius with his associates, as well as entities in Greek-administrated Cyprus, the UAE, Singapore, and several Caribbean Islands.

Claiming to have catalogued the entire Mauritius corporate registry, Hindenburg Research said many of those entities didn’t appear to be operational - they had no reported employees, independent addresses or phone numbers.

They also spotted 13 websites developed for some of the shell entities, many of which were created on the same days with stock photos, seemingly in an effort to “mask” their nature.

“Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals,” the report exposed.

It suggested that the shell entities were created for the illegal practice of stock parking, in which shares are sold to a second party for temporary storage only to be bought back by the initial owner, and laundering money “onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency.”

That means Adani Group had been exaggerating its market worth, generating “fake or illegitimate turnover” and siphoning money, according to the report

In the report that stirred scandal and controversy, Hindenburg Research also pointed out that the Adani Group had already been involved in four “major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption,” reaching approximately $17 billion.

‘Baseless allegations’

Over the weekend, Adani Group rolled out a 413-page response countering the Hindenburg Research report, saying it was “a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India.”

Jugeshinder Singh, Adani Group chief financial officer, separately said the report was "a malicious combination of selective misinformation and stale, baseless and discredited allegations.”

In a statement on Wednesday, chairperson Gautam Adani claimed his conglomerate’s “balance sheet is very healthy with strong cash flows and secure assets.”

There was also support for Hindenburg Research, including from billionaire hedge fund manager Bill Ackman, who said he found the report “highly credible and extremely well researched.”

According to Reuters news agency, India's market regulator Securities and Exchange Board of India (SEBI) has launched an investigation into the allegations put forward in the report, as well as potential irregularities in the Adani Enterprises share offering.

READ MORE: Adani abandons $2.5 billion share sale in big blow to Indian tycoon