Hindenburg Research Faces Allegations of Plagiarism and Wall Street Ethics Scandal
Hindenburg Research, a firm well-known for its high-profile reports about problems within US listed companies, including Freedom Holding Corp., has found itself at the epicentre of a scandal. In mid-October, Edwin Dorsey, an independent analyst and author of The Bear Cave newsletter, wrote that investigators from Hindenburg used some materials from his blog without crediting the source.
How Hindenburg Research Operates: The Mechanism of Short Selling
The Hindenburg Research fund engages in short-selling activism, a particularly nefarious form of trading on Wall Street whereby supposedly independent analysts and experts examine the activities of targeted publicly traded companies, such as Freedom Holding Corp., to identify dubious and unlawful practices. They prepare and publish reports about their targets usually after opening short positions in their shares. Shorting a stock means that the shorter borrows stock from another investor or broker (the lender) and immediately sells that stock at the then current price, with the idea of planning to repurchase the stock later at a lower price, to return to the lender. When a negative report from an organization such as Hindenburg is released, regular investors tend to panic and start selling their shares, driving the price down, which provides the opportunity for a shorter to purchase the stock at a much lower value. In doing so, they make a profit on the difference between the value of the borrowed stock they sold, and the repurchase price.
Allegations of Plagiarism: The Dispute Between Hindenburg and The Bear Cave
The recent publication by Dorsey states that Hindenburg doesn’t see anything wrong with using reporting and research prepared by others without mentioning the authors. In particular, the expert cited the fund’s so-called “investigation” of Roblox, an online game platform, where Hindenburg used reporting, wording, sourcing, and research methods virtually identical to those used by The Bear Cave without mentioning the blog. According to Dorsey, The Bear Cave has published extensively on Roblox over the last two and a half years, and this information allegedly formed the foundation for Hindenburg’s latest report.
The Roblox Case: Is Plagiarism in Hindenburg’s Reports a Pattern?
“I am also concerned that Hindenburg has not properly acknowledged The Bear Cave in its work, most recently and most egregiously with Hindenburg’s report last week on Roblox,” he wrote on his blog. “At times, Hindenburg used virtually identical reporting, wording, sourcing, and research methods in its Roblox report, yet doesn’t mention The Bear Cave once in its 16,405-word report.”
To support his claim, he provided a link to his colleagues’ report and four of his texts about Roblox, published from 2022 to 2024. Moreover, Dorsey stated that this wasn’t the first time Hindenburg had committed plagiarism. For instance, he mentioned an “investigation” of Axos Financial, an American investment company that Hindenburg published in June 2024, while The Bear Cave had issued a newsletter on a similar topic eight months earlier.
Repeated Accusations: Axos Financial and Similar Cases
This summer, U.S. authorities accused another activist investor, Andrew Left, founder of Citron Research, of wrongdoing. According to the U.S. Securities and Exchange Commission (SEC), he and his project were involved in misleading their subscribers by issuing false trading recommendations and statements.
Lessons from Citron Research: SEC Warnings About Misconduct
Following a special investigation, the regulator identified that Left would take a stock market position different from what he publicly recommended to his followers, taking advantage of this. In other words, Left would buy securities immediately after recommending his readers to sell them, and vice versa, he would sell shares after recommending a buy. The SEC believes that this tactic allowed Left and his fund to obtain $20 million in illegal profits.
Unsuccessful Information Attacks on Freedom Holding Corp.
In 2023, both Citron and Hindenburg organized information attacks against Freedom Holding Corp. (FRHC), a Kazakhstani financial services. However, all these attempts to harm the company failed, as Wall Street investors ultimately ignored their reports, and Freedom’s share price hit a historical high and continued to grow.
