It’s been two months since the attack by Hindenburg Research (HR) on the stock of Freedom Holding Corp. (FRHC). On August 15, HR published its report on FRHC, where speculators accused the holding of breaching sanctions, falsification of revenue, high-risk transactions with clients’ money and manipulating the market. Timur Turlov, CEO and majority shareholder of FRHC, responded to accusations by Hindenburg the next day.
The short sellers bet on a crash of the shares, but because the stock market was quite calm, they lost tens of millions of dollars. During the trading day on August 15, FRHC shares declined only by 3.22% to $73.27 per share. However, several days after the stock value went up and by the end of that week, the holding’s shares were traded at $80. This situation was a classic short squeeze when the price of FRHC shares was driven up by the activity of traders.
A week after the report by HR was issued, the international rating agency S&P confirmed the FRHC ratings.
On the fourth trading day after the attack, common shares of FRHC were traded at $84.33 per share, 15% higher than on August 15, while since the beginning of the year the stock value increased by 40%.
Timur Turlov told Kursiv.Media about the consequences of such great interest in FRHC.
– Mr. Turlov, when speculators publish such reports, this usually causes a crash in stock value and sparks the interest of authorized agencies, because they just have to do something. What has happened with Freedom Holding Corp. over the past two months? Has the operating performance of the holding been hit?
– No. The operating performance hasn’t been affected, which our investment and bank reports to regulators have proven. The amount of deposits by individuals hasn’t declined, for example. We have kept the trust of our key partners and clients. We have succeeded in preventing negative scenarios from happening thanks to our expertise in managing risks of this kind.
Huge interest in our company throughout the world was the best advertisement for us. I think that almost all global regulators came to us this summer. Of course, this is an exaggeration, but you know, when it comes to high-profile public accusations they must be examined. Even if the suspicions are groundless, every regulator in the world is obliged to investigate. No surprise. This is how the system works.
– What kind of questions did these regulators ask you?
– As long as there are no official reports by regulators, we do not confirm the facts of inspections on specific jurisdictions, and we do not comment on them. Nevertheless, we have a very strong position, and regulators’ inquiries were quite short, according to our U.S. lawyers from Morgan Lewis, who have seen many such inspections.
– You said that the company’s position is strong. What do you mean?
– When authorized agencies want to know something about our activities in the international stock market, our team of professional lawyers steps in and solves the issue. We understand that once the information is spread all over the world, all interested agencies must react to such accusations.
This means that the information attack didn’t succeed. You cannot impose sanctions against an American holding company on the basis of a clearly motivated publication in the media. This is our privilege. This is how the Western world works: public agencies should intervene and examine every accusation even if this is an anonymous attack. These information attacks divert our resources, that’s for sure, but we will eventually receive an objective evaluation of the company.
Our lawyers are confident that we are on the right side and have a strong position. Of course, we will have to spend money, but if someone wants to bully us with misinformation, he won’t succeed.
– Why are you calling this misinformation?
– The report by HR is nothing more than a mutilated version of our own report published on the U.S. Securities and Exchange Commission (SEC) website. This is a Form 10-K prepared by Deloitte without any reservations. In this report, we have disclosed everything. However, HR tried to sell our report as its own investigation. The hypothesis of misinformation is supported by the fact that some people we know create fake accounts on social media and then contact prominent Western journalists allegedly on my behalf. Everything suggests that they are exploiting every option they have.
– Among other accusations, HR accused the holding of doing business with sanctioned individuals. Has the company changed its approach to this in terms of internal processes and compliance?
– Let me be clear. We have never worked with clients in violation of the sanctions regimes. With a client base of hundreds of thousands of people, only a few of them ended up on the sanctions lists. And this happened after we had established business relations with them. Absolutely all transactions with these clients have met strict requirements of the law, including OFAC licenses. By the way, in some cases, OFAC rules allow certain transactions with persons on the sanctions lists for a certain period of time after the sanctions have been imposed. Unlike some other brokers who found themselves in a similar situation, we didn’t hide the fact that we had such clients, but just finished our transactions with them. It’s just impossible to be a big broker in Eurasia and not face such problems. In other words, our compliance policies were initially well thought out and prepared for a wide range of scenarios, so there is no need to amend our policies. In my opinion, we currently have one of the best compliance systems on the market.
– What is the company doing now to address the regulators’ concerns?
– FRHC is working with global regulators to finally stop speculations on this topic. Once these audits are completed in addition to the report by Deloitte and local audits, no one will be able to say that we did something wrong.
Members of the FRHC’s board hired an independent and respectable forensic investigator, who specializes in corporate investigations. In conjunction with Morgan Lewis, he is going to prepare an independent opinion in order to verify the facts from the HR report. This is going to take about a month, but we expect that all the regulators will be satisfied with this analysis and would be happy to wait for the outcome of this new report.
– Are you going to disclose the report’s results?
– Yes, this information is going to be public. We believe that the more we reveal, the fewer questions will remain afterward.
– What conclusions have you drawn from this attack?
– Once again, it is the duty of regulators, in whatever jurisdiction, to respond to such allegations. However, for a too-big-to-fail company, audits are a routine, ongoing process, and you want to complete it to calm everyone down and put an end to speculation around corporate information.
The main conclusion I drew from this process is that the right communication strategy, transparency, professionalism, the best external auditors, compliance and lawyers are the optimal defense for a modern global company.
We have a strong and big compliance team to work with regulators. We are proud of this huge team of professionals who work in our legal, compliance and finance departments as well as our controllers and members of our boards of directors. We are proud that those who verify our activities, consult and assist us are true market leaders who value their reputation. If we weren’t professional, transparent, and committed to our reputation, and if we didn’t collaborate with people who share these values, we wouldn’t exist.
– What are the current development challenges for FRHC? What are you currently focusing on as the holding’s CEO?
– As CEO, my task is to focus on the development projects of the company, which are quite a lot and on the further growth of the platforms, which are quite a lot as well. We believe that Kazakhstan is now a great place for doing business with a huge number of opportunities in different industries. The way our investment, banking and insurance businesses are developing in Kazakhstan is the best proof of that. Freedom Finance Bank today is one of the most promising digital banks in the country. It is ranked among systemically important banks and is a leader in terms of unique products such as digital mortgages and car loans. We are becoming one of the conduits of foreign capital into our economy, which has already been able to infuse small businesses in our country with millions of dollars at reasonable rates.