Shalini Nagarajan

Hindenburg Research is known for revealing corporate fraud and is notorious for betting against electric truckmaker Nikola in 2020, so it’s surprising that it found no such cases within the crypto space in one of the most scandalous years for the industry. 



On its website, Hindenburg says it looks for “man-made disasters floating around in the market and aim to shed light on them before they lure in more unsuspecting victims.”



The research firm, founded by chartered financial accountant <a href="https://www.linkedin.com/in/nathanzanderson/" target="_blank" rel="noreferrer noopener">Nathan Anderson</a>, says it hunts for accounting irregularities, bad actors in management and unethical business practices.



Hindenburg’s exposure of <a href="https://hindenburgresearch.com/nikola/" target="_blank" rel="noreferrer noopener">Nikola</a> contributed to a 90% plunge in the electric vehicle maker’s stock price and the collapse of its founder Trevor Milton. And just last week, the firm announced a short position in Indian conglomerate Adani Group, calling it “the largest corporate fraud in history,” and <a href="https://www.reuters.com/markets/deals/indias-adani-enterprises-calls-off-share-sale-source-says-2023-02-01/" target="_blank" rel="noreferrer noopener">wiping off billions</a> in market value from seven of its listed companies.&nbsp;



<h2 class="wp-block-heading">Hindenburg mostly skipped crypto-related fraud</h2>



Hindenburg might have had some juicy targets in the form of the biggest crypto blow-ups of 2022, including Three Arrows Capital, Celsius, Voyager and FTX.&nbsp;



Acting as the cop in the digital currency ecosystem takes on different dynamics considering the advanced technical resources and expertise that are required, according to one industry observer.&nbsp;



“That [Hindenburg] did not uncover FTX&#8217;s greed prior to its bankruptcy cannot be held against the firm. FTX blindsided everyone, even the top security platforms that are dedicated to the nascent industry,” Simon Schaber, Spool DAO’s chief business development officer.



“In reality, the crypto ecosystem operates in a way that may be alien to most investigators, and unless there is a direct whistleblower who shares insights into a firm’s operational inconsistencies, companies like Hindenburg Research will have little or nothing to work with.”



But there are several crypto companies that Hindenburg has gone after.



<h2 class="wp-block-heading">Crypto miner Riot Blockchain</h2>



Riot Blockchain has been called out by the fraud-exposer at least thrice, publicly anyway. The first instance was in December 2017, when it <a href="https://hindenburgresearch.com/riot-blockchain-sudden-business-pivot-suspicious-acquisitions-questionable-special-dividend/" target="_blank" rel="noreferrer noopener">pointed out</a> that Riot went from being a “life science tool” to a self-described leader in the blockchain industry.



Indeed, in October 2017, biotech company Bioptix <a href="https://www.prnewswire.com/news-releases/bioptix-changing-name-to-riot-blockchain-as-company-shifts-focus-to-strategic-investor-and-operator-in-blockchain-technologies-300530737.html" target="_blank" rel="noreferrer noopener">changed its name</a> to Riot Blockchain due to a pivot in the company’s business direction. The firm originally began operations in 2000 with the aim to develop products used in a blood test that evaluated acute appendicitis. But the change in business strategy saw its shares <a href="https://www.theglobeandmail.com/globe-investor/investment-ideas/bioptix-shares-surge-after-rebranding-to-riot-blockchain/article36491746/" target="_blank" rel="noreferrer noopener">nearly double</a>.



Hindenburg alleged that the company handed out a “special cash dividend” that sapped 63% of its cash by giving it away to company insiders. It also noted an individual with a controversial past, Barry Honig, had an “influential behind-the-scenes stake” in Riot.



Another <a href="https://seekingalpha.com/article/4136235-riot-blockchain-this-crypto-clown-car-continues-hurtling-toward-abyss" target="_blank" rel="noreferrer noopener">Hindenburg report</a> in January 2018 raised flags after filings showed Riot frequently shuffled its auditors.



And a month later, Hindenburg <a href="https://hindenburgresearch.com/riot-blockchain-yet-another-suspicious-cash-depleting-transaction/" target="_blank" rel="noreferrer noopener">alleged</a> that Riot spent six times more than it should have on equipment brought from a highly suspicious new entity, and revealed it had a short position on the company.



“We have seen a lot of ridiculous things in our day, but we believe Riot has engaged in some of the most brazen activity we have seen in a U.S. listed equity,” Hindenburg said.



<h2 class="wp-block-heading">China-based crypto firm Ebang</h2>



Hindenburg <a href="https://hindenburgresearch.com/ebang/" target="_blank" rel="noreferrer noopener">revealed</a> its short position on Chinese bitcoin mining machine producer Ebang in April 2021. 



Describing Ebang as a “China Hustle,” it said the company engaged in opaque deals with company insiders and once sent $21 million to a relative of its Chairman and CEO, among a string of other allegations.



“Ebang is yet another cautionary tale for inexperienced retail investors enthused by anything crypto-related. As is so common with other ridiculous China-based schemes, the company will likely keep selling shares as long as investors are willing to keep buying them. We think this is a clear one-way street, and the capital isn’t coming back,” it said.



<h2 class="wp-block-heading">Stablecoin issuer Tether</h2>



In October 2021, Hindenburg offered a whopping <a href="https://hindenburgresearch.com/tether/" target="_blank" rel="noreferrer noopener">$1 million bounty</a> to anyone who offered information on the reserves backing its stablecoin. 



The short-seller’s claims about Tether’s disclosures being opaque came right after the US Commodity Futures Trading Commission fined the stablecoin issuer $21 million over misleading statements.



Hindenburg has doubts about the legitimacy of Tether’s backing due to the company’s sparse disclosures,” it said.



A Tether spokesperson described the bounty offered as a stunt and “a pathetic bid for attention.”



They are attempting to discredit not just Tether, but an entire movement. Thankfully, everyone sees through their opportunism,” Tether told Blockworks.



Read more: <a href="https://blockworks.co/news/what-backs-tether-58-us-treasurys-and-a-mess-of-other-stuff">What Backs Tether? 58% US Treasurys and a Mess of Other Stuff</a>



“This is not the first time Hindenburg Research has orchestrated an alleged scheme in pursuit of profit. Nor will it be the last. Tether abhors and denounces their actions and transparent motives,” they added.



Hindenburg didn’t reply to a query seeking comment on whether it has so far received enough information to warrant paying out the $1 million bounty. Blockworks has also reached out to Riot and Ebang, but has yet to receive a response.



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3 Crypto Companies Hindenburg Research has Named and Shamed

Sam Martin

<div id="highlights-block_616f463ba7861" class="highlights">
 <ul>
 <li>Hidenburg announces a $1,000,000 bounty program for any individuals with knowledge of the reserves backing the world’s largest stablecoin</li>
 <li>Despite numerous probes, fines, and questionable activities surrounding Tether Limited, they have yet to be proven guilty of any major wrongdoing</li>
 </ul>
 
</div>



Forensic financial research and famous short selling firm, Hindenburg Research, announced a <a href="https://hindenburgresearch.com/tether-tos/" target="_blank" rel="noreferrer noopener">Tether Bounty Program</a> with a reward of up to $1 million for anyone who can provide deeper insight into the backing of the largest stablecoin in the digital asset space.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">We have doubts about the legitimacy of Tether, so today we announce the Hindenburg Tether Bounty Program, a reward of up to $1,000,000 for details on Tether’s backing. (1/x)<a href="https://t.co/DP5dWDcYmJ">https://t.co/DP5dWDcYmJ</a>&mdash; Hindenburg Research (@HindenburgRes) <a href="https://twitter.com/HindenburgRes/status/1450562260993298433?ref_src=twsrc%5Etfw">October 19, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The stablecoin issuer had long claimed to be backed one-to-one by traditional currency reserves. However, the company has since revealed that it is only backed by a small percentage of what many people consider to be traditional currencies.&nbsp;



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="512" height="383" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg" alt="" class="wp-image-9611" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=344 344w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=349 349w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=293 293w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Tether.jpg?w=80 80w" sizes="auto, (max-width: 512px) 100vw, 512px" /></figure></div>



Tether has been under scrutiny for quite some time, with the tempo increasing this year as regulators have directed a regulatory hammer towards the company. They have <a href="https://cms.blockworks.co/tether-settles-with-cftc-for-42-5m/" target="_blank" rel="noreferrer noopener">paid out</a> numerous fines, <a href="https://cms.blockworks.co/tether-remains-stable-amid-reports-of-doj-probe/" target="_blank" rel="noreferrer noopener">been probed</a> by the DOJ, and reportedly <a href="https://cms.blockworks.co/celsius-reportedly-borrowed-1b-from-tether-with-bitcoin-as-collateral/" target="_blank" rel="noreferrer noopener">lent out USDT</a> in exchange for cryptocurrencies used as collateral.



On October 18, the New York Attorney General <a href="https://cms.blockworks.co/new-york-attorney-general-orders-crypto-lending-platforms-to-halt-operations-in-state/" target="_blank" rel="noreferrer noopener">took aim</a> at the crypto lending industry, announcing investigations into Nexo and Celsius, and probing ties to Tether Limited.



Upon Tether’s release of information regarding its reserves, there have been <a href="https://www.ft.com/content/342966af-98dc-4b48-b997-38c00804270a" target="_blank" rel="noreferrer noopener">reports</a> of Tether being among the largest holders of commercial paper in the world.&nbsp;



<h3 class="wp-block-heading">Regulatory attention</h3>



Lately, Tether has garnered the attention of <a href="https://cms.blockworks.co/secs-gensler-stablecoins-are-poker-chips/" target="_blank" rel="noreferrer noopener">regulators</a> who worry that the stablecoin could present systemic issues in debt markets if there were ever to be a bank-run situation where Tether was forced to liquidate their reserves to pay out redemptions.&nbsp;



According to Hindenburg&#8217;s <a href="https://hindenburgresearch.com/tether/" target="_blank" rel="noreferrer noopener">press release</a>, the bounty program incentivizes users to submit any relevant information on Tether’s backing for a chance to earn up to $1 million if the information is deemed useful.&nbsp;



“We feel strongly that Tether should fully and thoroughly disclose its holdings to the public. In the absence of that disclosure, we are offering a $1,000,000 bounty to anyone who can provide us exclusive detail on Tether’s supposed reserves,” said Hindenburg Research founder, Nathan Anderson.&nbsp;



Hindenburg claims they are seeking to advance the public knowledge of a growing threat to crypto markets. The firm also <a href="https://twitter.com/HindenburgRes/status/1450562266919841798?s=20" target="_blank" rel="noreferrer noopener">disclosed</a> that they do not hold positions, either long or short, in Tether, bitcoin or any cryptocurrency.



As of press time, <a href="https://coinmarketcap.com" target="_blank" rel="noreferrer noopener">Tether</a> has a market capitalization of $69,050,000,000, making it the fifth-largest cryptocurrency in the entire digital asset market.



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