Freedom Holding CEO Timur Turlov speaks throughout a press interview in Moscow, Russia, Oct. 10, 2019.
Maxim Shemetov | Reuters
Freedom Holding, a Nasdaq-traded Kazakh monetary agency that is been the target of prominent short sellers, is being investigated by federal prosecutors and Securities and Exchange Commission counsel over compliance points, insider inventory strikes, and an offshore affiliate tied to sanctioned people, CNBC has discovered.
The SEC’s Boston regional workplace has been probing Freedom for months, in accordance with documents seen by CNBC and folks aware of the matter. The firm, headquartered in Almaty, Kazakhstan, has a $5 billion market cap and is managed and majority-owned by 35-year-old billionaire CEO Timur Turlov, a former Russian citizen.
The U.S. Attorney’s Office for Massachusetts is additionally making preliminary inquiries into Freedom, documents seen by CNBC show. Such inquiries typically happen after a civil probe finds proof of attainable crimes.
The overlapping SEC and DOJ probes are scrutinizing the agency’s inside controls and offshore operations, in addition to Turlov’s claims that Freedom can get its largely Russian shopper base entry to sizzling U.S. IPOs, in accordance with the documents and sources.
Turlov and Freedom are conscious of the SEC probe, which has been occurring for months, an individual aware of the matter instructed CNBC. The Justice Department’s involvement with these points is more moderen, documents show. Probes of this type can take years and should not result in prison or civil costs. So far, there have been no formal costs or allegations of wrongdoing.
Turlov did not reply to CNBC’s interview request, however in an interview that was published by a Kazakh outlet Thursday, he acknowledged that “virtually all world regulators got here to us this summer season.”
Freedom declined to remark.
An SEC spokesperson instructed CNBC that it would not touch upon the existence or nonexistence of an investigation.
A Justice Department spokesperson declined to remark.
The SEC has been conscious of potential securities violations at Freedom since not less than 2022. Some of the problems that caught investigators’ consideration — together with allegations associated to sanctions violations, IPO entry and inventory buying and selling — have been additionally raised in an August report from quick vendor Hindenburg Research, which claimed that Freedom “nonetheless does enterprise within the Russian market, and that the corporate has overtly flouted sanctions together with anti-money laundering (AML) and know-your-customer (KYC) guidelines.”
The SEC intensified its scrutiny after the Hindenburg report and an analysis published in April by quick vendor Citron Research, sources aware of the matter instructed CNBC.
Freedom’s website describes the corporate as a supplier of funding banking and brokerage companies to Central Asia and Eastern Europe. Its web site lists two addresses within the U.S., one in New York and the opposite at a Las Vegas co-working and digital workplace house.
The firm leases a 15,250-square-foot workplace in the Trump Building in New York’s Financial District, in accordance with filings. The two flooring home Freedom’s present U.S. operations, together with a brokerage firm registered with the Financial Industry Regulatory Authority. Freedom says in filings it has almost 3,700 staff and 370,000 brokerage clients.
The Trump Building at 40 Wall St. in New York.
Jin Lee | Bloomberg | Getty Images
Turlov based Freedom in 2010, and by 2013 he had expanded the enterprise from Moscow to the EU. The firm stated it divested its Russian business in February, virtually a yr after Russia launched its invasion of Ukraine. Turlov, a former citizen of Saint Kitts and Nevis within the Caribbean in addition to Russia, owns 71% of Freedom shares, price roughly $3.6 billion.
Turlov has been a citizen of Kazakhstan since 2022. He was required to surrender each his Saint Kitts and his Russian citizenship, as Kazakhstan would not acknowledge dual citizenship.
‘Signs of criminal activity’
The Hindenburg report, partially, alleged that Freedom helped sanctioned people acquire entry to the U.S. monetary system via a Belizean holding company, additionally owned by Turlov, that helped funnel and obfuscate transactions. In SEC filings, Freedom acknowledged it does enterprise with sanctioned people via the Belize affiliate, however denies these people have entry to U.S., U.Okay. or EU monetary methods via Freedom.
The Belizean entity, included in 2014, is now named Freedom Securities Trading Belize, or FST Belize.
“FST Belize, we have now the identical sanctions compliance as in the whole holding,” Turlov said in an August interview with a publication in Kazakhstan. “There is no motive for sanctions, if there is no involvement of U.S. representatives within the operation.”
FST Belize holds Kazakh licenses that permit it function a securities buying and selling platform and course of worldwide funds and cash transfers, according to the company. In 2021, the Kazakh authorities added the subsidiary to an inventory of corporations “with indicators of criminal activity.”
In response, Freedom said it “fully complies” with native legal guidelines and rules wherever it operates.
Another level of inquiry by U.S. authorities is the buying and selling exercise of Freedom inventory, which was uplisted to the Nasdaq in 2019 below the ticker FRHC after beforehand buying and selling over-the-counter.
Historically, destructive reviews from established quick sellers will harm an organization’s inventory. Freedom shares dipped about 8% the 2 buying and selling days that adopted Hindenburg’s report. They shortly rebounded, together with a 25% leap on Aug. 18, with no obvious rationalization.
Hindenburg alleged that Freedom and Turlov protected the corporate’s inventory from wild swings by guaranteeing that shoppers held the shares of their brokerage accounts, lowering the danger of volatility.
At least 5 legislation corporations have said they’re investigating claims on behalf of traders for potential violations of securities legislation for the reason that Hindenburg report.
Citron compared Freedom to Sam Bankman-Fried’s failed and allegedly fraudulent buying and selling agency, Alameda Research. The funding agency stated Turlov’s ties to Russia and its continued brokerage operations within the nation made the corporate a primary candidate for an SEC investigation.
Freedom Holding’s foremost places of work are in Esentai Tower, the tallest constructing in Kazakhstan’s monetary hub, town of Almaty. Other tenants within the Skidmore, Owings & Merrill-designed constructing embody the Ritz-Carlton Almaty and Ernst & Young’s Kazakhstan operations.
Andrey Rudakov | Bloomberg | Getty Images
Freedom has confronted prior regulatory challenges.
In July, the corporate’s European subsidiary paid a 50,000 euro fine to the Cypriot securities regulator over failures in its cash laundering and anti-terrorist financing controls.
And final yr, Freedom’s former U.S. auditor, WSRP, was changed by Deloitte Kazakhstan, after the U.S. audit regulator discovered that three of Freedom’s auditors at WSRP did not comply with correct requirements of evaluate. Freedom’s auditors have been sanctioned and barred for what the regulator stated was a failure to assess the true nature of the corporate’s relationship with its Belize entity.
Those auditors are eligible to reapply for reinstatement. But WSRP stepped down as Freedom’s auditor. Deloitte Kazakhstan helped Freedom restate the prior auditor’s misguided filings to the SEC and regain compliance with alternate guidelines, filings show.
Deloitte’s Kazakh workplace is just some blocks away from Freedom’s headquarters, on the outskirts of Kazakhstan’s largest metropolis and monetary hub. Freedom is the one SEC-registered U.S. firm that Deloitte Kazakhstan audits, in accordance with Public Company Accounting Oversight Board data.
A view from Almaty’s Esentai Tower, the place Freedom’s head places of work are. The places of work of Deloitte Kazakhstan, Freedom’s newest auditor, might be seen within the distance, close to the constructing with a inexperienced illuminated signal.
Wwd | Penske Media | Getty Images
“First factor to think about is that the corporate has been audited by the most important big-4 auditor, Deloitte,” Turlov stated, in his response to Hindenburg’s report.
Deloitte and Roman Sattarov, the Deloitte companion overseeing Freedom’s audit, did not reply to CNBC’s request for remark.
Freedom is nonetheless making an attempt to broaden within the U.S. In February, the corporate agreed to pay $400 million, primarily in inventory, for middle-market funding financial institution Maxim Group. Maxim has labored on IPOs for a lot of smaller corporations and has been a part of larger offers, akin to PIMCO Access Income Fund’s $866 million offering in 2022.
Turlov is not letting the U.S. probes preserve him away. He traveled to New York final month.
“This week speaking to our US workplace, companions and regulators,” he wrote in a Sept. 25 post on X, the social media platform previously generally known as Twitter.
A spokesperson for Turlov stated he was “positively not assembly with regulators.”
In Turlov’s interview revealed Thursday in Kazakhstan, he did not say which U.S. regulators approached the corporate, however stated all of it stemmed from Hindenburg’s report, which he referred to as “misinformation.”