[The Fountain] A villain wearing the mask of justice?

If the fund’s attacks are unsubstantiated, I would agree to the criticism. But if not, there is no justification to blame the fund as a short seller.

JANG WON-SEOKThe author is a stock market news reporter at the JoongAng Ilbo. In May 1937, an airship from Germany appeared over a naval base in New Jersey. Spectators gathered to watch the gigantic, whale-like flying object. The landing was horror itself. It slowly came down in flames, killing 35 people. The airship used hydrogen, cheaper than the hard-to-get helium. While there had been similar incidents before, they ignored the warning signs. It was a predictable tragedy. This airship was the Hindenburg.

Hindenburg Research is an American activist fund. It is different from ordinary activist investors because it is not interested in dividends or corporate value improvement. Instead, it makes money from short-selling after releasing corporate wrongdoings such as accounting fraud or undisclosed transactions. The fund says it will discover human-made disasters like the Hindenburg case before they create victims in the market.

Hindenburg Research got its name out in 2020. Nikola Corporation was once praised as an innovative company. But Hindenburg released a report that the company was actually built on the lies of founder Trevor Milton. A fierce dispute soon arose over the report. But Hindenburg turned out to be right. Trevor Milton left the company and was found guilty of fraud. The stock price of Nikola, once over $60, has fallen to around $2 today.

Its new target is Adani Group of India, an infrastructure company dominating the arteries of India’s economy such as logistics, energy and distribution. On Jan. 25, Hindenburg revealed that Adani was involved in misfeasance such as embezzlement, money laundering and tax evasion. It started a big shock. In about 10 days, 150 trillion won ($118.9 billion) in the market cap of seven listed companies of the group evaporated. Its credit rating fell. The shock spread to not only the banks that gave loans to Adani but the overall Indian stock market, with many foreign investors leaving.

Some view Hindenburg as a villain wearing the mask of justice. While it advocates for market purification, it destroys companies for money in the end. If the fund’s attacks are unsubstantiated, I would agree to the criticism. But if not, there is no justification to blame the fund as a short seller.

A majority of individual investors tired of the asymmetrical information between companies and investors support Hindenburg. In a rather different style, activist funds are recently active in Korea too. It coincides with the rapid surge of individual investors. While there is criticism that the activist funds only emphasize shareholder returns and hinder investment, enhancing shareholder value is an old task in the Korean stock market. Companies must get used to it.