Hindenburg Research. What do we know about the company that attacked LPP?

On Friday, the American agency Hindenburg Research published a report presenting evidence that, contrary to LPP's declarations, the owner of the Reserved, Cropp, House, Mohito and Sinsay clothing brands did not exit the Russian market at all, and the sale of Russian assets to a Chinese buyer was a sham. Investors immediately reacted to these revelations: shortly after the report was published, the value of the shares fell by 27%.

LPP accused of operating in Russia and fake activities

The Gdańsk clothing manufacturer immediately reacted with a series of statements in which it explained that it had not operated in Russia since 2022, and the sale transaction of the Russian company was not fictitious and did not involve accounting or bookkeeping manipulations. He also argues that the findings described in the report are manipulated and aimed at weakening LPP.

The statements state that as of 2022, LPP does not control the Russian company OOO Re Trading and its activities, and entities under the names Fashion Group Textile and Asia Fashion Import Export are not controlled by LPP in any way. The company stated that it does not control the entity called Far East Services in any way.

“The Management Board of LPP did not in any way finance the share sale transaction or running a business in Russia after its sale, including through loans secured by a pledge on LPP shares,” it was written.

Three statements by LPP

The group also stated that it did not ship goods to Russia through the territory of Kazakhstan. However, she admitted that in the first months after the sale of the Russian branch of the business, clothes from the new collection and warehouses were still for sale, so they could actually be found in the store.

The obligation to put them on sale resulted from the contract and covered only the so-called transitional period. “Contrary to the claims contained in the Hindenburg Research material, these provisions do not differ from market standards for this type and size of transactions, especially those concluded in the circumstances of the mass exodus of international business from the territory of Russia and the poor prospects for this market at the time of concluding the agreements,” LPP said.

This transitional period is to last until 2026. This is the time when the buyer gradually takes over full independence over the company's operations.

It did not end with statements to the media: LPP submitted to the prosecutor's office notifications on suspicion of committing a crime to the detriment of the company, its shareholders and investors, threatening the security of the financial market.

Who is Hindenburg Research?

Hindenburg Research is a New York-based financial analysis and investing company. An important area of ​​its activity are economic investigations, the results of which are described in extensive reports. He points out manipulations, false statements, calculates real profits – in short, he brings to light everything that management would like to keep hidden. Delving into secrets is emphasized in the company's name: the Hindenburg is an airship that crashed in New Jersey, USA, in 1937. 36 people died in the crash (most of the passengers survived). The Hindenburg disaster put an end to the use of airships to transport passengers.

The causes of the disaster were kept secret for a long time, so there are many theories explaining how it happened. This is what prompted the founder of the American intelligence agency, Nathan Anderson, to choose an unusual “patron” for his company: the Hindenburg is a symbol of disasters for which humans are responsible.

Hindenburg Research vs. Adani Group

Hindenburg Research is not a company with a long tradition, it has only existed since 2017. However, its analysts have completed several very high-profile investigations that hit corporations with multi-million budgets. At the beginning of 2023, Hindenburg Research published a report in which it accused the Adani Group of many years of massive accounting fraud, using hundreds of shell companies in tax havens to siphon off money, falsifying commercial documentation and systematic manipulation of share prices of companies belonging to the group. Adani Gropu belongs to one of the richest men in the world, Gautam Adani.

After the report was published, the shares of Adani Group fell and the businessman's fortune decreased by USD 57 billion. The media dubbed the situation the biggest fraud in history, and Adani threatened the American company to take the case to court. No lawsuit was filed, which analysts monitoring the case explained by the fact that Adani Group was afraid of disclosing documents that could confirm at least some of the allegations. The matter was not swept under the carpet: SEBI, the Securities and Exchange Commission of India, started an investigation.

However, some companies are ready to fight for their good name and the billions that flowed away when investors lost trust in them. In February 2023, Reuters reported that two of the approximately twenty companies whose activities were critical of Hindenburg had sued the American company for defamation. The fight turned out to be unsuccessful: both lawsuits – one from Chinese developer Yangtze River Port and Logistics, the other from Bollywood producer Eros International – were dismissed in 2019.

Controversy surrounding Hindenburg Research

In total, since 2017, Hindenburg Research has taken a closer look at 20 companies. LPP is the first organization from Poland.

Now the question is: do well-paid analysts spend hours poring over documents and conducting their investigations because they have a mission to make the world of big business better? Is this some kind of crusade against “exploiters” and “fraudsters”? Motivation, however, may be much less clear-cut. Intelligence is involved in stock market investments, betting on the so-called short positions (shorts) in shares of companies that are the subject of its reports. Therefore, she benefits – a lot – from the decline in the value of shares of companies that she previously accused of lies and manipulation. This raises suspicions that some of the accusations may be prepared in order to gain something in the short term.