Who is Mark Kingdon, the man under Sebi radar ove

trades?
The US hedge fund manager and entities floated by him are under the regulatory lens for allegedly entering into a scheme to illegally
Hindenburg report on Adani Group. They have a curious Chinese link too

N Sundaresha Subramanian THE ECONOMIC TIMES

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 agreement

The 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.

Hindenburg Responds To SEBI's Show-Cause Notice On Alleged Misrepresentations In Adani Report |

News

However, 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 connection

Sebi 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.
The 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
hate

To amplify the impact of next-gen US-China philanthropy and social innovation; and

To catalyse the business and social sectors to collaborate on some of the most
pressing issues shaping

Serica 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.

Kotak twist in Hindenburg-Adani Saga: Short-seller slams SEBI, Indian govt | TOP POINTS

To 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 area

Nevertheless, 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