Kazakh fintech Freedom Holding is being investigated by DOJ, SEC, documents show

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, based on documents seen by CNBC and folks acquainted with 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 reveals proof of attainable crimes.

Freedom shares fell as a lot as 9.3% Friday morning after CNBC’s report however closed up 1.52%. Nearly 364,000 Freedom shares modified arms by the closing of buying and selling Friday, 4.5 instances 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 sizzling U.S. IPOs, based on the documents and sources.

Turlov and Freedom are conscious of the SEC probe, which has been happening for months, an individual acquainted with the matter advised CNBC. The Justice Department’s involvement with these points is newer, documents show. Probes of this type can take years and will not result in legal or civil expenses. So far, there have been no formal expenses 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 “almost all global regulators came to us this summer.”

Freedom declined to remark.

An SEC spokesperson advised 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 at the least 2022. Some of the problems that caught investigators’ consideration — together with allegations associated to sanctions violations, IPO entry and inventory buying and selling — had been additionally raised in an August report from quick vendor Hindenburg Research, which claimed that Freedom “still does business in the Russian market, and that the company has openly flouted sanctions along with anti-money laundering (AML) and know-your-customer (KYC) rules.”

The SEC intensified its scrutiny after the Hindenburg report and an analysis published in April by quick vendor Citron Research, sources acquainted with the matter advised 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 area. 

The firm leases a 15,250-square-foot workplace in the Trump Building in New York’s Financial District, based on filings. The two flooring home Freedom’s current U.S. operations, together with a brokerage firm registered with the Financial Industry Regulatory Authority. Freedom says in filings it has almost 3,700 workers and 370,000 brokerage clients.

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, 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 dual citizenship.

The Hindenburg report, partially, alleged that Freedom helped sanctioned people achieve entry to the U.S. monetary system by means of 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 by means of the Belize affiliate, however denies these people have entry to U.S., U.Okay. or EU monetary programs by means of Freedom.

The Belizean entity, included in 2014, is now named Freedom Securities Trading Belize, or FST Belize.

“FST Belize, we have the same sanctions compliance as in the entire holding,” Turlov said in an August interview with a publication in Kazakhstan. “There is no reason for sanctions, if there is no involvement of U.S. representatives in 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 a listing of corporations “with signs of illegal activity.”

In response, Freedom said it “fully complies” with native legal guidelines and laws 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 underneath the ticker FRHC after beforehand buying and selling over-the-counter.

Historically, damaging studies 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 rapidly rebounded, together with a 25% bounce on Aug. 18, with no obvious clarification.

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, decreasing the chance of volatility.

At least 5 regulation corporations have said they’re investigating claims on behalf of traders for potential violations of securities regulation 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 chief candidate for an SEC investigation.

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 assessment. Freedom’s auditors had 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 only a few 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, based on Public Company Accounting Oversight Board information.

“First thing to consider is that the company has been audited by the largest big-4 auditor, Deloitte,” Turlov stated, in his response to Hindenburg’s report.

Deloitte and Roman Sattarov, the Deloitte associate 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 maintain him away. He traveled to New York final month. 

“This week talking to our US office, partners and regulators,” he wrote in a Sept. 25 post on X, the social media platform previously often called Twitter. 

A spokesperson for Turlov stated he was “definitely not meeting 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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