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 goal of distinguished brief sellers, is being investigated by federal prosecutors and Securities and Change Fee 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 response to paperwork seen by CNBC and other people aware of the matter. The corporate, 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. Lawyer’s Workplace for Massachusetts can be making preliminary inquiries into Freedom, paperwork seen by CNBC present. Such inquiries usually happen after a civil probe reveals proof of doable crimes.
Freedom shares fell as a lot as 9.3% Friday morning after CNBC’s report however closed up 1.52%. Almost 364,000 Freedom shares modified palms by the closing of buying and selling Friday, 4.5 occasions the inventory’s 10-day common.
The overlapping SEC and DOJ probes are scrutinizing the agency’s inner controls and offshore operations, in addition to Turlov’s claims that Freedom can get its largely Russian shopper base entry to scorching U.S. IPOs, in response to the paperwork and sources.
Turlov and Freedom are conscious of the SEC probe, which has been occurring for months, an individual aware of the matter informed CNBC. The Justice Division’s involvement with these points is more moderen, paperwork present. Probes of this sort can take years and will not result in prison or civil fees. To this point, there have been no formal fees or allegations of wrongdoing.
Turlov did not reply to CNBC’s interview request, however in an interview that was revealed by a Kazakh outlet Thursday, he acknowledged that “nearly all world regulators got here to us this summer time.”
Freedom declined to remark.
An SEC spokesperson informed CNBC that it would not touch upon the existence or nonexistence of an investigation.
A Justice Division spokesperson declined to remark.
The SEC has been conscious of potential securities violations at Freedom since at the very least 2022. A number of the points 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 brief vendor Hindenburg Analysis, 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 evaluation revealed in April by brief vendor Citron Analysis, sources aware of the matter informed CNBC.
Freedom’s web site describes the corporate as a supplier of funding banking and brokerage companies to Central Asia and Jap 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 area.
The corporate leases a 15,250-square-foot workplace in the Trump Constructing in New York’s Monetary District, in response to filings. The 2 flooring home Freedom’s current U.S. operations, together with a brokerage agency registered with the Monetary Trade Regulatory Authority. Freedom says in filings it has almost 3,700 staff and 370,000 brokerage prospects.
The Trump Constructing at 40 Wall St. in New York.
Jin Lee | Bloomberg | Getty Photographs
Turlov based Freedom in 2010, and by 2013 he had expanded the enterprise from Moscow to the EU. The corporate stated it divested its Russian enterprise in February, nearly 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, value roughly $3.6 billion.
Turlov has been a citizen of Kazakhstan since 2022. He was required to resign each his Saint Kitts and his Russian citizenship, as Kazakhstan would not acknowledge twin citizenship.
‘Indicators of criminal activity’
The Hindenburg report, partly, alleged that Freedom helped sanctioned people achieve entry to the U.S. monetary system via a Belizean holding firm, 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.Ok. or EU monetary methods via Freedom.
The Belizean entity, included in 2014, is now named Freedom Securities Buying and selling Belize, or FST Belize.
“FST Belize, now we have the identical sanctions compliance as in all the holding,” Turlov stated in an August interview with a publication in Kazakhstan. “There isn’t any cause for sanctions, if there isn’t any 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, in response to the corporate. In 2021, the Kazakh authorities added the subsidiary to a listing of firms “with indicators of criminal activity.”
In response, Freedom stated it “totally complies” with native legal guidelines and laws wherever it operates.
One other 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.
Traditionally, damaging studies from established brief sellers will damage 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% bounce on Aug. 18, with no obvious rationalization.
Hindenburg alleged that Freedom and Turlov protected the corporate’s inventory from wild swings by making certain that shoppers held the shares of their brokerage accounts, lowering the danger of volatility.
A minimum of 5 regulation companies have stated they’re investigating claims on behalf of buyers for potential violations of securities regulation for the reason that Hindenburg report.
Citron in contrast Freedom to Sam Bankman-Fried’s failed and allegedly fraudulent buying and selling agency, Alameda Analysis. The funding agency stated Turlov’s ties to Russia and its continued brokerage operations within the nation made the corporate a first-rate candidate for an SEC investigation.
Freedom Holding’s essential places of work are in Esentai Tower, the tallest constructing in Kazakhstan’s monetary hub, town of Almaty. Different tenants within the Skidmore, Owings & Merrill-designed constructing embody the Ritz-Carlton Almaty and Ernst & Younger’s Kazakhstan operations.
Andrey Rudakov | Bloomberg | Getty Photographs
Freedom has confronted prior regulatory challenges.
In July, the corporate’s European subsidiary paid a 50,000 euro fantastic 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 didn’t observe correct requirements of evaluation. Freedom’s auditors have been sanctioned and barred for what the regulator stated was a failure to evaluate the true nature of the corporate’s relationship with its Belize entity.
These auditors are eligible to reapply for reinstatement. However 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 trade guidelines, filings present.
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 response to Public Firm 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, may be seen within the distance, close to the constructing with a inexperienced illuminated signal.
Wwd | Penske Media | Getty Photographs
“Very first thing to contemplate 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 continues to be attempting to increase 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 firms and has been a part of larger offers, resembling PIMCO Entry Revenue Fund’s $866 million providing in 2022.
Turlov is not letting the U.S. probes maintain 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 put up on X, the social media platform previously often called Twitter.
A spokesperson for Turlov stated he was “undoubtedly 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.”
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