Who is Mark Kingdon, the man under Sebi radar over Adani trades?

In perhaps the most direct attack till date on the integrity of market regulator Securities and Exchange Board of India (Sebi), US-based research firm Hindenburg in a detailed rebuttal to a show-cause notice, alleged the regulator of colluding to protect special interests and having “neglected” its responsibility. Its unprecedented posting of the Sebi show-cause notice in public domain has brought to fore the role of Kingdon Capital Management, another US-based hedge fund, and its founder Mark Elliot Kingdon.Kingdon, founder and managing member of the eponymous firm, has spent more than five decades in the investment world, according to recent US Securities and Exchange Commission (SEC) filings. As of January 2023, the firm had assets under management of $623.21mn, as per one of these filings.Kingdon Capital offers two investment strategies: a global long/short equity strategy (flagship strategy) and a global long/short healthcare strategy (healthcare strategy). “The flagship strategy consists of thematic, idiosyncratic and opportunistic investments with diversified return drivers and an emphasis on liquidity. The healthcare strategy primarily invests in the global healthcare industry,” according to an SEC filing.Before setting up Kingdon Capital in April 1983, he worked for eight years at another investment firm, Century Capital Associates, as a portfolio manager and general partner. From 1973 to 1975, he was a pension fund administrator for AT&T. In a 2016 column for the Wall Street Journal, Kingdon, a Brooklyn boy, wrote about his first tryst with the stock market during his first summer job “as an office boy at a Midtown Manhattan brokerage during the 1965 bull market”.He received a BA in economics from Columbia College in 1971 and an MBA from Harvard Business School in 1973. Kingdon and his wife Anla Cheng, also a hedge fund manager, were involved in various philanthropic initiatives in New York through their arm, Mark and Anla Cheng Kingdon Foundation.He has served on the boards of Columbia University, the Harlem Children’s Zone, the New York City Police Foundation, the Social Science Research Council and Carnegie Hall besides receiving several awards, his online profiles showed.Secret agreementThe crux of Sebi’s allegations was that the agreement between Mark Kingdon and Hindenburg to exclusively share the report before wider publication and create positions on the Adani stock amounted to a scheme.The Sebi show-cause notice alleged that Hindenburg had a pre-publication understanding and profit-sharing arrangement with Kingdon Capital. In fact, Hindenburg verbally agreed to reduce its share to 25% from 30% because the trade required setting up of expensive offshore structures for execution. medium nocaptionhttps://youtu.be/wHgB-uTr5PQ?si=jX3W1LOKw5buvraLHowever, Kingdon told Sebi that it had received legal opinion that “it could enter into a research services agreement with a third-party firm that publicly releases short reports on companies, pursuant to which Kingdon Capital would be given a draft copy of the report before it made publicly available and would have the opportunity to accordingly make investments before the report’s public dissemination”.A show-cause notice is not an indictment. Sebi may or may not follow up the charges with penal orders depending on the responses and material available.An email sent to Kingdon on July 2 seeking comments on the show-cause notice remained unanswered.The Chinese connectionSebi went to a great extent to unravel the various vehicles and structures used by Kingdon.However, unlike the shady offshore shell entities probed by Hindenburg, some of whose ultimate owners even Sebi could not unearth, the ownership and control trail of Kingdon entities seemed fairly straightforward and ended with the Kingdon family itself.Accordingly, the Kingdon Offshore Master Fund, which invested in Kotak Structured FPI KIOF Class F, had three feeder funds namely, Kingdon Associates (66%), Kingdon Offshore (28%) and Kingdon Family partnership (6%).Further through these vehicles, Kingdon himself had an exposure of 54.09%, his family held 4.71%, taking their combined holding of KIOF to 58.8%. In addition, being the investment manager, he had 100% control over investment strategies and execution. medium111508838The structure unearthed by Sebi showed that Mark and Anla Cheng Foundation had more than 25% exposure in Kingdon Offshore.The foundation has supported several causes including education, culture and social welfare. Not only has it focused on the Chinese diaspora in the US, but also undertaken significant initiatives in Mainland China.According to a profile on the portal of Global Chinese Philanthropy Initiative, “Ms. Cheng and her husband, Mark Kingdon, successful hedge fund investors, now direct the Mark and Anla Cheng Kingdon Foundation, based in New York City. Since 1998, the foundation has focused on higher education, arts and culture, and social services. Ms. Cheng and Mr. Kingdon have made substantial contributions to Columbia University, of which Mr. Kingdon was Vice Chair/Trustee, and China Institute, of which Ms. Cheng is Vice Chair/Trustee.”A Chinese-American who made her fortune by investing in China, Cheng was a founding member of the PBS series, Becoming American: The Chinese Experience. The series explores how Chinese immigrants have sought balance between their heritage and the adopted country and made trade-offs in forming new self-identities.Another effort funded by Cheng is the work of the Museum of Chinese in America (MOCA). “Ms. Cheng continues to pursue projects to advance the understanding of Chinese in America and supports curriculum, textbook, and educational projects that increase understanding among students domestically as well as abroad,” the Global Chinese philanthropy initiative portal said.In her LinkedIn profile, where she doesn’t use her Kingdon surname, Cheng described herself as the founder/CEO of Serica initiative since January 2022.Serica carries out this mission through our strategic priorities:To educate and cultivate empathy around the issues of Sinophobia and anti-Asian hateTo amplify the impact of next-gen US-China philanthropy and social innovation; andTo catalyse the business and social sectors to collaborate on some of the most pressing issues shapingSerica was formerly the sister non-profit of the China Project, a New York-based, China-focused news, information and business services platform, according to the China Project Website. Cheng was the founder and CEO of the China Project (earlier known as SupChina) between 2015 and 2022. In November that year, Hindenburg first shared the draft Adani report with Kingdon entities, as per Sebi findings.A month before this, in October 2022, Cheng and the China Project had landed in a controversy after a former employee-turned-whistleblower alleged the firm was acting on behalf of the Chinese Communist Party and were sympathetic to their causes. While Cheng and the China Project have denied these charges strongly, news reports suggested that a complaint had been filed with the US department of justice and the SEC and these were being pursued aggressively by some Republican senators. ET Prime could not independently ascertain the status of these complaints. An email sent to Cheng through the email id given on the China Project portal on July 3 remained unanswered. medium nocaptionhttps://youtu.be/u6Po-qqw9PA?si=UK1mjpL4y235q1EWTo be sure, Sebi has not named Cheng or the foundation as one of the noticees in the show-cause notice, nor has it talked about the Chinese connection.However, the strong Chinese flavour unearthed by ET Prime might raise eyebrows and lend a new lease of life to the Adani Group’s past statements of the whole Hindenburg episode being a conspiracy to destabilise the country.Earlier this year, Gautam Adani himself had alluded to political motives against the country behind the short sale. “Last year on January 24, we were subject to a massive attack by a US short-seller. The objective was not just to destabilise us but also to politically defame India’s governance practices,” he had said at a private event in March.Nevertheless, Wharton-educated Cheng seems to have enjoyed a stellar career across top American banks. Describing her professional career, Cheng said on LinkedIn, “My career started at Goldman Sachs on the GNMA bond desk, then to Citigroup as a Pacific Basin as an Asian Portfolio Manager. My career then took me to Robert Fleming where I was SVP and head of Asia Institutional Group. I went on to run my own family office of HF, PE, and alternate strategy Fund of Funds called Centenium Capital Partners. Centenium Fund of Funds invested in alternative funds throughout the Asia-Pacific region.”The grey areaNevertheless, some lawyers feel that Sebi’s notice itself is on thin ice in the matter and may not stand judicial scrutiny, even if an adverse order comes out of it.“Taking action against a US-based entity like Hindenburg falls into a grey area due to jurisdictional limitations. Sebi can, however, collaborate with international regulatory bodies such as the US SEC under mutual cooperation agreements within IOSCO to address any cross-border securities law violations,” said Sumit Agrawal, founder, Regstreet Law Advisors and former Sebi official.According to Agarwal, potential Sebi actions like bans or fines as a preventive measure against further criticism of Indian companies would raise more questions for Sebi than resolve the issue.“Proposing a ban on Hindenburg from participating in Indian markets would depend on a finding of guilt for employing a ‘scheme’ or ‘artifice’ under Sebi FUTP regulations or disseminating false information under FPI or Research Analyst Regulations. In appeals, courts may need to examine the history and future implications of the case to determine if it is intrinsically linked to the business, political environment, and regulators, which Hindenburg might argue constitutes a ‘scheme’ or ‘artifice’ for malicious prosecution against them,” Agarwal concluded.Further, Hindenburg itself in its original report published in January 2023, contained the following disclaimer:Hindenburg Research (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our clients and/or investors has a short position in all stocks or bonds (and/or derivatives of the stock) covered herein, and therefore stands to realise significant gains in the event that the price of any security covered herein declines.Following publication of any report or letter, we intend to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial conclusions, or opinions.Sebi, however, held on to the first part of the disclaimer in which the research firm had said its report was related to securities traded outside India. “We hold short positions in Adani Group companies through US-traded bonds and non-Indian-traded derivatives, along with other non-Indian-traded reference securities. This report relates solely to the valuation of securities traded outside of India,” it said.Lead illustration: Manali Ghosh