Hindenburg Research refuted allegations on Monday from India's securities regulator accusing the company of colluding with a U.S. asset manager to use non-public information to set up its short bet against Adani Group last year.

In a statement posted to its website, U.S.-based short-seller Hindenburg provided a copy of a 46-page show cause notice from the Securities and Exchange Board of India (SEBI) outlining the allegations that six entities including Hindenburg, asset manager Kingdon Capital Management and a Mauritus-based trading fund set up by Kotak Mahindra Bank violated certain rules under the Prevention of Fraud and Unfair Trade Practices regulation.

While SEBI has not made the notice public, two sources at the regulator with direct knowledge of the matter confirmed its authenticity.

The allegations, if proven, could result in monetary penalties and the payback of any illegal gains.

Hindenburg responded saying the notice is "nonsense" and an attempt to silence and intimidate by alleging that Hindenburg's report contained misrepresentations and inaccurate statements meant to mislead readers.

"In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it," Hindenburg said.

The disclosure of the SEBI notice adds a new twist in the saga that began last year when Hindenburg, founded by Nathan Anderson, alleged improper business dealings by Adani.

Adani, which refuted the allegations, suffered a loss of as much as $150 billion in combined market value after the report, but has since rebounded.

In the notice, SEBI alleges Hindenburg colluded with its client Kingdon Capital Management by providing a draft of its report on Adani Group before it was released publicly.

SEBI alleges that Mark Kingdon, the owner of Kingdon Capital, then set up a fund able to trade Indian equities known as K Indian Opportunities Fund. That fund created short positions in Adani group stocks between Jan. 10, 2023, and Jan. 20, 2023, five days ahead of the Hindenburg report being published, according to the SEBI documents.

In its statement, Hindenburg said a Mauritius registered unit of Kotak Mahindra Bank, an Indian firm, created and oversaw an offshore fund structure that was used by its "investor partner" to bet against Adani's shares.

The positions were squared off in February, leading to gains of $22.25 million, the SEBI documents said.

Hindenburg in its statement does not comment on its relationship with Kingdon.

An email to Hindenburg Research and Kingdon Capital was not immediately answered.

SEBI has not replied to a request for comment on Hindenburg's statement and to confirm the authenticity of the show cause order.

Kotak did not reply to a request for comment.

Hindenburg's response sheds some light on the mechanics of its Adani short trade, the details of which intrigued other investors because Indian securities rules make it hard for foreigners to bet against companies there.

Hindenburg said it made $4.1 million in gross revenue through "gains related to Adani shorts from that investor relationship" and just $31,000 through its short position of Adani's U.S. bonds. It did not name the investor.

"It was a tiny position," it said. "But, to date, our research on Adani is by far the work we are most proud of."

(Reporting by Urvi Dugar in Bengaluru and Juby Babu in Mexico City; Editing by Krishna Chandra Eluri, Stephen Coates and Christian Schmollinger)