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Freedom Holding Corp: Brazen Sanctions Evasion, Hallmarks Of Fabricated Revenue and Risky Bets with Commingled Customer Funds

  • Freedom Holdings is a $4.6 bil­lion mar­ket cap online bro­ker­age busi­ness, found­ed in 2008, for­mer­ly based in Moscow and lat­er moved to Kazakhstan. Its mul­ti-bil­lion­aire Chairman & CEO, Timur Turlov, owns over 70% of the company’s shares and has since inception.
  • Since list­ing on Nasdaq in 2019, Freedom shares have rock­et­ed over 450%, lur­ing investors in with the image of quick­ly grow­ing firm led by a young, tech-savvy founder.
  • Our inves­ti­ga­tion into the com­pa­ny, under­tak­en over the course of a year, has includ­ed a review of exten­sive inter­na­tion­al cor­po­rate and reg­u­la­to­ry records, inter­views with for­mer employ­ees and indus­try analysis.
  • Our research has unveiled a laun­dry list of red flags includ­ing evi­dence that Freedom (i) brazen­ly skirts sanc­tions (ii) shows hall­mark signs of fake rev­enue (iii) com­min­gles cus­tomer funds then gam­bles assets in high­ly lev­ered, illiq­uid, risky mar­ket bets (iv) and dis­plays signs of mar­ket manip­u­la­tion in both its invest­ments and its pub­licly trad­ed shares.
  • Prior to Russia’s inva­sion of Ukraine, Freedom made it clear that both coun­tries, with a com­bined pop­u­la­tion of 188 mil­lion peo­ple, would be key pieces to its growth strat­e­gy going forward.
  • Following Russia’s 2022 inva­sion of Ukraine, Freedom fire-sold its Russian busi­ness to a Freedom employ­ee for $140 mil­lion in order to avoid sanc­tions. Turlov still secret­ly con­trols the enti­ty, accord­ing to a for­mer exec­u­tive we interviewed.
  • The move didn’t fool Ukrainian author­i­ties: Ukraine sus­pend­ed Freedom’s bro­ker­age license and froze its assets. Chairman & CEO Timur Turlov was also per­son­al­ly sanc­tioned by Ukrainian President Volodymyr Zelensky due to his Russian ties.
  • Despite osten­si­bly los­ing both mar­kets, Freedom now claims its rapid, unin­ter­rupt­ed rev­enue growth has been fueled by Kazakhstan, a coun­try of just 19 mil­lion peo­ple with a GDP per capi­ta of $10,373.
  • We found 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.
  • On August 4, 2023, 11 days ago, the com­pa­ny open­ly admit­ted it pro­vid­ed “bro­ker­age ser­vices to cer­tain indi­vid­u­als and enti­ties who are sub­ject to sanc­tions imposed by OFAC, The European Union or the United Kingdom,” in its lat­est annu­al report.
  • This admis­sion of sanc­tions eva­sion fol­lows a long his­to­ry. Four months after U.S. sanc­tions against Russia fol­low­ing its 2014 inva­sion of Ukrainian Crimea, Freedom Chairman & CEO Turlov estab­lished his own pri­vate enti­ty in Belize (“FFIN Belize”), admit­ting in lat­er fil­ings that the enti­ty helps Russians side­step “restric­tions” to access U.S. markets.
  • In 2015, as a new­ly list­ed U.S. com­pa­ny, Freedom expand­ed its busi­ness fur­ther when it bought a bank from Vladimir Putin’s Former Chief of Staff, a sanc­tioned Russian oli­garch nick­named “Darth Vader”.
  • Freedom Finance in Russia and Kazakhstan has also helped divert funds from sanc­tioned banks. For exam­ple, in April 2022, the U.S. hit Alfa Bank with the most severe inter­na­tion­al “full block­ing sanc­tions”, along with an asset freeze. Days lat­er, Freedom open­ly adver­tised an easy-to-use ser­vice to help clients shift assets out of Alfa Bank.
  • Four of Russia’s “finan­cial elite” tied to Alfa Group, includ­ing its founder, were sanc­tioned by the U.S. Treasury just days ago on August 11, 2023. Despite this, FFIN Belize still adver­tis­es the abil­i­ty to send rubles via Alfa Bank, allow­ing cus­tomers to eas­i­ly fun­nel rubles via a sanc­tioned Russian bank right into the U.S. stock market.
  • Several months after “full block­ing” sanc­tions were imposed on VTB bank, its cus­tomers shared tips over a telegram chan­nel on how to trans­fer mon­ey through Freedom Finance in Kazakhstan.
  • Similarly, Tinkoff Bank, on EU, UK and U.S. sanc­tions lists, also advised its pre­mi­um cus­tomers to open accounts remote­ly with Freedom Bank Kazakhstan, accord­ing to Forbes Russia.
  • Former employ­ees described the open flout­ing of sanc­tions, along with AML & KYC rules. “This is vio­lat­ing almost every country’s anti-mon­ey and anti-ter­ror­ist financ­ing laws…I’ve per­son­al­ly seen suit­cas­es with $2.5 mil­lion brought in cash by a client”, a for­mer Freedom exec­u­tive told us.
  • Another for­mer Freedom exec­u­tive told us: “I have nev­er seen an orga­ni­za­tion so unstruc­tured and just bla­tant­ly like I’m sor­ry for my words, but tak­ing a shit on reg­u­la­tions and rules and basi­cal­ly every­thing as much as this.”
  • The U.S. gov­ern­ment has enforced sanc­tions through an inten­sive glob­al cam­paign. Overall, we find it sur­pris­ing that a pub­licly-trad­ed com­pa­ny in our own back­yard has worked to brazen­ly under­mine those efforts for years.
  • Beyond sanc­tions eva­sion, Freedom seems to be engaged in a broad vari­ety of cor­po­rate malfea­sance involv­ing the same Belizean enti­ty pri­vate­ly owned by its Chairman & CEO.
  • From 2018–2020, in the lead up to Freedom’s 2019 Nasdaq uplist­ing, unnamed relat­ed par­ties drove Freedom’s rev­enue growth, account­ing for 67.5% of total report­ed rev­enue by 2020.
  • The lack of relat­ed par­ty dis­clo­sures result­ed in Freedom’s audi­tors lat­er being barred and fined by the Public Company Accounting Oversight Board (PCAOB) for vio­lat­ing audit standards.
  • A 2021 exposé first revealed the extent of Freedom’s deal­ings with its key unnamed relat­ed par­ty dri­ving rev­enue growth, FFIN Belize, result­ing in the enti­ty pub­lish­ing its first and only set of financials.
  • FFIN Belize’s lone set of pub­lished finan­cials report­ed $2.5 bil­lion in both trade receiv­ables and payables, but just $5.4 mil­lion in cash, a hall­mark of cir­cu­lar or fake rev­enue transactions.
  • Freedom has report­ed an increase of 306% in relat­ed par­ty rev­enue from FFIN Belize since 2020. It report­ed fee and com­mis­sion rev­enue of $196.3 mil­lion from FFIN Belize in FY 2023. Freedom has direct­ed this mon­ey back to FFIN Belize with $289 mil­lion in mar­gin loans to the entity.
  • 25% of Freedom’s report­ed rev­enue comes from this relat­ed par­ty in Belize, as of Freedom’s most recent annu­al finan­cials. FFIN Belize has not pro­vid­ed finan­cials of its own since 2020, despite being run by Freedom’s Chairman & CEO.
  • Beyond sanc­tions eva­sion & signs of fake rev­enue, FFIN Belize also com­min­gles cus­tomer assets, plac­ing them at extreme risk. Buried in FFIN Belize’s risk dis­clo­sures is men­tion of a “spe­cial bro­ker­age account” say­ing it can com­min­gle client funds and essen­tial­ly do what­ev­er it wants with them for its “own interests”.
  • One sell­ing point for Freedom’s cus­tomers has been Turlov’s claim that its clients have access to hot IPO allo­ca­tions through FFIN Belize, which obtains the stakes from an unnamed hedge fund. “No one knows” who the hedge fund is, one for­mer told us. “My sus­pi­cion is there is no actu­al IPO [allo­ca­tion].”
  • The enti­ty has also offered high ‘guar­an­teed’ return prod­ucts to lure in cus­tomers. In October 2021, Kazakhstan’s finan­cial mar­ket reg­u­la­tor black­list­ed FFIN Belize for ‘signs of ille­gal activ­i­ty’ relat­ing to such products.
  • …we found out that they don’t actu­al­ly exe­cute trades. So where the mon­ey goes, nobody knows,” a for­mer Freedom exec­u­tive told us, explain­ing that FFIN Belize received funds through offices in Russia but wasn’t actu­al­ly trad­ing the secu­ri­ties as promised.
  • I wouldn’t even be sur­prised if all of this was all manip­u­lat­ed and they weren’t even invest­ing in stocks,” anoth­er for­mer told us.
  • All the while, Freedom has used funds to take on high lever­age and mar­ket risk. While it claims it has “con­ser­v­a­tive risk man­age­ment” and “lim­its the amount of cred­it expo­sure to any one issuer”, SEC fil­ings show Freedom invest­ed 35% of its gross prin­ci­pal trad­ing bal­ance, or $835 mil­lion, in the debt of just one Kazakh issuer. The posi­tion is larg­er than Freedom’s share­hold­er equi­ty bal­ance of $777 million.
  • Freedom also dis­closed that as of March 2023 its $2.4 bil­lion in trad­ing secu­ri­ties were financed with ~$1.5 bil­lion in short term lia­bil­i­ties with matu­ri­ties under 30 days. Meanwhile, the bonds are extreme­ly illiq­uid with a 30-day aver­age vol­ume of just $16.6 mil­lion. Freedom’s posi­tion rep­re­sents a full 50 days of trad­ing volume.
  • Those same Kazakh bond invest­ments yield low­er returns than the short-term rates used to finance them. We esti­mate Freedom los­es $0.5 mil­lion to $33 mil­lion per year on this con­cen­trat­ed, lever­aged, neg­a­tive car­ry trade.
  • Freedom aggres­sive­ly increased its posi­tion in the bond issuer from $297 mil­lion in December 2021 to $720 mil­lion in December 2022, dur­ing a peri­od of seem­ing­ly arti­fi­cial­ly inflat­ed prices. In January 2023, Kazakhstan’s finan­cial reg­u­la­tor report­ed that the issuer’s bonds were being manipulated.
  • In brief, Freedom seems to be rely­ing on short term, expen­sive lever­age to hold a mas­sive, illiq­uid, mon­ey los­ing posi­tion in bonds that have like­ly been propped up by Freedom’s own pur­chas­es. This pos­es an exis­ten­tial risk for Freedom and any com­min­gled cus­tomer assets.
  • We also uncov­ered hall­marks of mar­ket manip­u­la­tion in Freedom’s own stock, includ­ing inex­plic­a­bly steady trad­ing vol­ume and price, seem­ing­ly imper­vi­ous to both mar­ket-wide events and com­pa­ny spe­cif­ic neg­a­tive news.
  • Over the last 1.5 years, over 59% of trad­ing in Freedom’s stock has been dri­ven by two tiny bro­ker­age firms with ties to Freedom: (1) Lek Securities, account­ing for over 59% of trad­ing vol­ume in 2022 despite account­ing for just 0.06% of trad­ing vol­ume on NASDAQ and (2) Vision Financial Markets, account­ing for ~17% of YTD 2023 report­ed trad­ing vol­ume in Freedom despite com­pris­ing only 0.03% of NASDAQ volume.
  • Both Lek and Vision have clear­ing arrange­ments with Freedom, indi­cat­ing a close rela­tion­ship. Lek was charged with manip­u­la­tive trad­ing by the SEC in 2017 along­side a Ukrainian bro­ker­age firm. Its founder was barred from the secu­ri­ties indus­try in 2019.
  • Vision was barred by the National Futures Association in 2014 but relaunched. Subsequently, it has accu­mu­lat­ed a rap sheet of 26 reg­u­la­to­ry sanc­tions over issues includ­ing a lack of effec­tive AML pro­ce­dures and a “fail­ure to pre­vent and detect poten­tial­ly manip­u­la­tive trad­ing activ­i­ty”, accord­ing to FINRA and Nasdaq enforce­ment actions.
  • A for­mer Vision exec­u­tive summed up the brokerage’s busi­ness mod­el: “the takeaway—and I talked about ‘dodgy’—is that Vision’s oper­at­ing in areas that oth­er firms don’t want to oper­ate in.” He described Vision’s busi­ness as “a lit­tle bit dan­ger­ous” and con­firmed Freedom is its “biggest customer”.
  • Finally, Freedom itself has been sub­ject to mul­ti­ple reg­u­la­to­ry sanc­tions. Four Freedom enti­ties in Kazakhstan have accrued 244 penal­ties, result­ing in 121 sanc­tions, over alle­ga­tions rang­ing from mon­ey laun­der­ing to ter­ror­ism financing.
  • Freedom has also failed to dis­close an ongo­ing SEC inves­ti­ga­tion since at least October 2021, accord­ing to report­ing by Disclosure Insight.
  • All told, Freedom Holding has exhib­it­ed a star­tling array of red flags relat­ing to vir­tu­al­ly every cat­e­go­ry of finan­cial malfea­sance wor­thy of investigation.

Background: A $4.6 Billion Market Cap Online Brokerage Business Formerly Based In Moscow, Later Moved To Kazakhstan

Freedom Holdings is an online retail bro­ker­age busi­ness based in Kazakhstan that gen­er­ates around 71% of its total rev­enue from Central Asia and Eastern Europe.[1] [Pg. 9] In addi­tion to bro­ker­age ser­vices, the com­pa­ny offers a range of oth­er finan­cial ser­vices includ­ing invest­ment coun­sel­ing, bank­ing, and insur­ance prod­ucts. [1,2,3]The busi­ness was found­ed in 2008 in Moscow by its now mul­ti-bil­lion­aire Chairman & CEO, Timur Turlov, who has held over 70% of the company’s shares since incep­tion.[2][3]

(Pictured: Freedom Chairman & CEO Timur Turlov (right) pos­es along­side a stuffed Russian bear in this 2017 Instagram pho­to he titled “2×Brokers and the Bear. From Ural with love.”)

Freedom went pub­lic in the US in 2015 through a reverse merg­er with an oil and gas com­pa­ny trad­ing on the over the counter (OTC) mar­ket. [Pgs. 4–5] The com­pa­ny uplist­ed to NASDAQ in 2019.The retail trad­ing mania dur­ing the pan­dem­ic helped pro­pel rapid account growth for Freedom. As of March 31, 2020, the com­pa­ny report­ed 140,000 client accounts. [Pg. 2] By 2023, just three years lat­er, that num­ber grew to 370,000 client accounts.In February 2023, Freedom announced it would fur­ther its “strat­e­gy of acqui­si­tions” and expand its pres­ence in the U.S. invest­ment bank­ing indus­try through a $400 mil­lion bid for Maxim Group, a low-tier invest­ment bank. [4]Since list­ing on NASDAQ in 2019, Freedom’s shares have rock­et­ed over 450%, trad­ing just ~9% off all-time highs with a mar­ket cap of $4.6 billion.

For the casu­al observ­er, Freedom looks like a retail bro­ker­age firm led by a young, tech-savvy founder, expand­ing from a niche region­al mar­ket to oth­er excit­ing lines of busi­ness. [1,2,3]Despite this, even if one were to take Freedom’s report­ed fun­da­men­tals at face val­ue (which requires ignor­ing numer­ous red flags), the com­pa­ny trades at an ele­vat­ed 5.3x sales and 22x earn­ings. By com­par­i­son, peers in sim­i­lar riski­er juris­dic­tions like XTB and Plus500 trade at ~5.3x earnings.

Freedom Lost 2 Of Its Top 3 Key Growth Markets In 2022–2023: Russia And Ukraine

Freedom Fire-Sold Its Russian Business To One Of Its Own Senior Executives In An Effort To Avert Sanctions

In Ukraine, Freedom Was Hit With Sanctions Anyway: Its Brokerage License Was Suspended And Its Assets Were Frozen. It Remains Sanctioned To This Day

In a 2020 pre­sen­ta­tion, pri­or to the Russian inva­sion of Ukraine, Freedom empha­sized that Russia and Ukraine, col­lec­tive­ly, account­ed for 2 of its top 3 key “strat­e­gy and growth drivers”.

Yet after Russia’s inva­sion of Ukraine, Freedom sup­pos­ed­ly lost access to both mar­kets:#1 Ukraine. In October 2022, Ukrainian author­i­ties sus­pend­ed Freedom’s Ukrainian bro­ker­age license and froze its assets fol­low­ing its inclu­sion on a gov­ern­ment sanc­tions list. It remains on the list to this day.

#2 Russia. In October 2022, Freedom announced it would sell its Russian busi­ness for $140 mil­lion to an employ­ee. The trans­ac­tion was com­plet­ed in February 2023.Freedom has removed all investor pre­sen­ta­tions from its web­site as of this writing.

­­The “Key Market” Supposedly Supporting Freedom’s Reported Financials Is Now Kazakhstan, A Country With 19 Million People And a GDP Per Capita of $10,373

After los­ing the Russian mar­ket of ~144 mil­lion peo­ple and the Ukrainian mar­ket of ~44 mil­lion peo­ple, Freedom now claims its mas­sive growth has been dri­ven by cus­tomers in its next largest “key mar­ket”, the tiny nation of Kazakhstan, which has a pop­u­la­tion of just 19 million.

(Freedom’s rev­enue and net income growth. Source: FactSet)

Specifically, Freedom’s 2023 rev­enue for Central Asia & Eastern Europe, in which its key mar­ket is Kazakhstan, stood at $566 mil­lion, increas­ing 154% year over year. [Pg. 73]Kazakhstan’s income inequal­i­ty and wide­spread pover­ty hard­ly seems to be an envi­ron­ment capa­ble of deliv­er­ing Freedom´s claimed growth.In late January 2022, President Kassym-Jomart Tokayev addressed a meet­ing of Kazakh-based oli­garchs in the wake of coun­try­wide riots sparked by fuel price hikes. Freedom CEO Turlov was at the meet­ing. Tokayev said:

International experts say that only 162 peo­ple own half of Kazakhstan’s wealth. While half of the population’s month­ly income doesn’t exceed $114. That’s just over $1,300 a year. It’s almost impos­si­ble to live on such mon­ey. As I said, such strat­i­fi­ca­tion and inequal­i­ty is dangerous.”

Part I – Key To Freedom’s Growth: Skirting Sanctions

On August 4, 2023, (11 Days Ago) Freedom Admitted It Provided “Brokerage Services To Certain Individuals And Entities Who Are Subject To Sanctions Imposed By OFAC, The European Union Or The United Kingdom”

Key stages of Freedom´s expan­sion have been reached thanks to Turlov´s will­ing­ness to do busi­ness with sanc­tioned Russian oli­garchs or Kazakh busi­ness­men close­ly linked to their country´s cor­rupt polit­i­cal elites.With busi­ness oper­a­tions in strate­gi­cal­ly opaque geo­graph­ic loca­tions, Turlov and Freedom, despite their oblig­a­tions under U.S. law, have seem­ing­ly defied sanc­tions, facil­i­tat­ed mon­ey laun­der­ing and aid­ed clients in skirt­ing cur­ren­cy con­trols to move funds out of Russia.In its recent annu­al report filed on August 4, 2023, Freedom open­ly admit­ted that it pro­vid­ed “bro­ker­age ser­vices to cer­tain indi­vid­u­als and enti­ties who are sub­ject to sanc­tions imposed by OFAC, The European Union or the United Kingdom”. [Pg. 25]

It sought to jus­ti­fy these trans­ac­tions by say­ing the very same ser­vices “did not involve any nexus with the United States, the European Union or the United Kingdom”. [Pg. 25]

In oth­er words, Freedom – a U.S. list­ed company—acknowledges pro­vid­ing finan­cial ser­vices to indi­vid­u­als who have specif­i­cal­ly been tar­get­ed by sanc­tions deemed to be of U.S. nation­al strate­gic importance.

This Is Violating Almost Every Country’s Anti-Money And Anti-Terrorist Financing Laws…I’ve Personally Seen Suitcases With $2.5 Million Brought In Cash By A Client”— Former Freedom Senior Executive

I Have Never Seen An Organization So Unstructured And Just Blatantly…Taking A Shit On Regulations and Rules”—Former Freedom Sales Rep

According to mul­ti­ple for­mer employ­ee inter­views, Freedom Finance offices in Russia and Kazakhstan rou­tine­ly chan­nel clients into an opaque Belizean enti­ty pri­vate­ly owned by Freedom’s CEO. (The enti­ty was named FFIN Brokerage Services. It is now renamed Freedom Securities Trading and referred to here as “FFIN Belize”).FFIN Belize has grown to become a key dri­ver of Freedom’s claimed revenue—representing 25% of last year’s report­ed rev­enue alone. [Pgs. 62, 95[5]Attempting to crack open the FFIN Belize “black box” and dis­cov­er its mechan­ics, we talked to for­mer employees.They told us that the FFIN Belize enti­ty was used to fun­nel mon­ey out of Russia, often in cash, with no regard for KYC and AML protocols.A for­mer senior exec­u­tive, who worked for Freedom in Russia and lat­er in Kazakhstan between 2018–2020, described the extent of Freedom’s KYC and AML checks:

Literally noth­ing. Just bring your mon­ey. There’s no source of income, source of funds. There’s no KYC. Nothing. The best part is this is vio­lat­ing almost every country’s anti-mon­ey and anti-ter­ror­ist financ­ing laws. They could bring cash. I’ve per­son­al­ly seen suit­cas­es with $2.5 mil­lion brought in cash by a client.”

An account man­ag­er who worked until 2023 with Freedom Finance in Russia (lat­er renamed Cifra Broker) cor­rob­o­rat­ed this:

Actually you could even come with cash to Freedom.”

Another for­mer employ­ee, who worked for Freedom Holding in the UAE (before the com­pa­ny was incor­po­rat­ed there and even though it has not yet been licensed to offer finan­cial ser­vices there) explained that meet­ings with clients were con­duct­ed in pri­vate rooms at high-end hotels and that cash invest­ments were read­i­ly accepted:

If I have to give a ball­park esti­mate, I think about 80% of that came from either cash or cryptocurrencies.”

They said Freedom then moved cash out of Dubai using local, infor­mal Hawala mon­ey trans­fer net­works – a sys­tem that has become noto­ri­ous for facil­i­tat­ing mon­ey laun­der­ing and ter­ror­ist financing.The for­mer employ­ee said most Freedom clients in Dubai were Russian or “East European ori­gin”. Anyone who did not pass KYC and proof-of-funds checks was re-rout­ed to open accounts at FFIN Belize:

We have clear guide­lines. You know, if it’s a vanil­la client, Cyprus. If it’s not a vanil­la client, then Belize…We call it vanil­la, like, you know, like clean clients, vanil­la fla­vored, like, you know, the ice cream, vanil­la. It’s like the clean­est flavor.”

I’ll be hon­est with you, I think I only sent one client to the Cyprus one because the rest of all of these clients were basi­cal­ly to Belize accounts.”

The for­mer employ­ee said Freedom Holding know­ing­ly flout­ed KYC rules to move dirty money:

They were basi­cal­ly cow­boys. They found a way to actu­al­ly take the oli­garch mon­ey, send it across the world, put it into the stock markets.”

I have nev­er seen an orga­ni­za­tion so unstruc­tured and just bla­tant­ly like I’m sor­ry for my words, but tak­ing a shit on reg­u­la­tions and rules and basi­cal­ly every­thing as much as this.”

These issues have per­sist­ed through the years, per our findings.

Freedom’s CEO’s Belize Entity (“FFIN Belize”) Was Established In 2014, 4 Months After U.S. Sanctions Against Russia Following Its Invasion of Ukrainian Crimea

A Freedom Filing Acknowledged That FFIN Belize Helps Russians Sidestep “Restrictions” In Order to Access U.S. Markets

Freedom Holding Chairman & CEO Turlov incor­po­rat­ed his pri­vate­ly-held FFIN Belize in July 2014,[6] just 4 months after Russia invad­ed and annexed Ukraine´s Crimea region, spark­ing a first wave of glob­al sanc­tions.In its fil­ings, Freedom Holding makes no overt ref­er­ence to the 2014 sanc­tions but does explain that Turlov set up his pri­vate, Belize-reg­is­tered enti­ty (called “FFIN Brokerage” in fil­ings) to help investors side­step Russian reg­u­la­tions and restrictions:

July 2014, Timur Turlov estab­lished FFIN Brokerage. As a for­eign bro­ker deal­er, FFIN Brokerage had been able to pro­vide investors in Russia and Kazakhstan with eas­i­er access to the U.S. secu­ri­ties mar­kets than a Russian or Kazakhstan com­pa­ny could pro­vide, due to applic­a­ble reg­u­la­tions in Russia and Kazakhstan which imposed restric­tions on for­eign cur­ren­cy accounts, required manda­to­ry secu­ri­ties cus­tody in-coun­try, and lim­it­ed access to for­eign secu­ri­ties” [Pg. 39]

2015: As A Newly U.S‑Listed Company, Freedom’s Business Expanded When It Bought A Bank From Putin’s Former Chief Of Staff, A Sanctioned Russian Oligarch Nicknamed “Darth Vader”

Freedom incor­po­rat­ed in Russia in 2008 but its fledg­ling bro­ker­age busi­ness grew sig­nif­i­cant­ly fol­low­ing Russia’s 2014 inva­sion of Ukrainian Crimea.In the wake of the inva­sion, the U.S. sanc­tioned oli­garchs close to Russian President Vladimir Putin. These oli­garchs includ­ed Igor Sechin who served as Putin’s for­mer Chief of Staff, Deputy Prime Minister and lat­er CEO of state oil com­pa­ny Rosneft. Sechin also had con­trol of Okhabank, a region­al bank, via his role as CEO at Rosneft.[7][8]Nicknamed “Darth Vader”, Sechin has been described as the sec­ond most impor­tant per­son in Russia after Putin. These inter­na­tion­al sanc­tions cre­at­ed oppor­tu­ni­ties for those will­ing to help oli­garchs evade restric­tions –includ­ing Turlov and Freedom.

(Former Putin Chief of Staff Igor Sechin, “Darth Vader”, via Daily Express)

In March 2015, when Turlov was just 27 years old, Sechin began divest­ing Okhabank to Freedom, which lat­er iron­i­cal­ly renamed the bank Freedom Finance Bank.[9]Just 8 months lat­er, in November 2015, Turlov took Freedom pub­lic in the U.S. via a reverse merg­er with an oil and gas com­pa­ny trad­ing on the over the counter (OTC) mar­ket. [Pg. 4] The deal to pur­chase Okhabank from its sanc­tioned own­ers was ful­ly com­plet­ed in April 2016, five months after Freedom had gone public.The acqui­si­tion closed at a time when U.S. sanc­tions pro­hib­it­ed U.S. cit­i­zens or enti­ties, osten­si­bly includ­ing the new­ly list­ed Freedom Holding, from deal­ing with sanc­tioned indi­vid­u­als and cor­po­ra­tions, like Sechin and Rosneft.[10]

Following Russia’s 2022 Ukraine Invasion, Freedom Fire-Sold Its Russian Business To A Related Party For $140 Million In Order To Avoid Sanctions

CEO Turlov and The Buyer Were “Childhood Friends”, According to A Former Executive

As of March 2021, Freedom had more offices in Russia than any oth­er coun­try, per its annu­al report. [Pg. 7] Freedom was the 9th largest bro­ker in the coun­try, accord­ing to media reports.In June 2022, 4 months after Russia’s inva­sion of Ukraine, Turlov announced his inten­tion to ‘divest’ the Russia busi­ness by sell­ing it to him­self. Turlov hoped the move would some­how avoid sanc­tions, say­ing the company’s most robust busi­ness would now tech­ni­cal­ly “exist inde­pen­dent­ly of the hold­ing com­pa­ny”.[11]In October, Freedom instead signed an agree­ment to sell its Russian busi­ness­es for $140 mil­lion to an employ­ee. The pur­chase price rep­re­sent­ed rough­ly 3.3% of the company’s mar­ket cap at the time, despite the busi­ness­es com­pris­ing 25% of its rev­enue and much of its claimed future growth poten­tial.[12] [Pg. 118] [Pgs. 4, 71]The buy­er was Maxim Povalishin, the Deputy General Director and a mem­ber of the Board of Directors of Freedom’s Russian sub­sidiary, per Freedom’s press release. The deal was com­prised of a $51.5 mil­lion cash pay­ment and assump­tion of an $88.5 mil­lion lia­bil­i­ty by the buyer.

Despite The Russia “Sale”, Turlov Still Controls The Entity, A Former Senior Executive At Freedom Told Us

A for­mer senior exec­u­tive of Freedom Holding who had per­son­al­ly worked with both Turlov and Povalishin described the sale of Freedom Finance Russia to Povalishin as a ruse to skirt sanctions:

Maxim Povalishin, basi­cal­ly the buy­er, he’s the head of the back office of Turlov´s Belize enti­ty. So he’s like his child­hood friend, right? And he still works there. So he just made it seem like he sold the enti­ty to his friend for like a hun­dred and some mil­lion dol­lars. Although the guy had like $5 mil­lion to his name tops.”

So I’m assum­ing what they did, what they did is he just made it seem for, you know, the pur­pos­es of sanc­tions and the whole image of sup­port­ing Russia and doing busi­ness in Russia, that they sold off the Russian enti­ty. But he (Turlov) still con­trols it.”

The Move Didn’t Fool Ukrainian Authorities: Ukraine Suspended Freedom’s Brokerage License And Froze Its Assets

Timur Turlov Was Also Personally Sanctioned By Ukrainian President Volodymyr Zelensky Due To His Russian Ties

As not­ed above, cou­pled with Russia, Ukraine was set to be a major “growth dri­ver” for Freedom. [Slide 11].According to its 2021 annu­al report, Freedom had a sig­nif­i­cant pres­ence in Ukraine with 13 offices nation­wide. [Pg. 7] Just two days after Freedom’s deal to shed Russian assets was signed on October 17, 2022, Ukrainian pres­i­dent Volodymyr Zelensky issued a decree sanc­tion­ing Freedom’ Founder and CEO Turlov, along with oth­er indi­vid­u­als, for alleged­ly abet­ting the Russian regime or its finan­cial system.The 17 spe­cif­ic sanc­tion mea­sures includ­ed an asset freeze, a ter­mi­na­tion of all busi­ness activ­i­ties, a ban on mov­ing assets out of the coun­try and a ban on enter­ing Ukraine.[13]The Ukrainian asset freeze includ­ed 12,800 Freedom cus­tomer accounts and about U.S. $95 mil­lion in assets, along with a sus­pen­sion of Freedom’s Ukrainian bro­ker­age license for 5 years.

(Source: Ukraine National Securities Agency trans­lat­ed via Google)

Freedom issued a press release two days after the decree say­ing it was “stunned” to learn of the deci­sion by Ukrainian author­i­ties, call­ing it an “error”. It stat­ed that its agree­ment to divest Russian assets to an employ­ee, made less than a week ear­li­er, and Turlov´s adop­tion of Kazakh cit­i­zen­ship 3 months ear­li­er in June 2022 were signs the com­pa­ny had sev­ered ties with Russia.The com­pa­ny said it believed the sanc­tions would “be resolved quickly.”Current checks of Ukrainian gov­ern­ment sanc­tion lists show that the sanc­tions are still active.

(Source: Ukraine War & Sanctions list, spon­sored by the Ukrainian Ministry of Foreign Affairs)

After Russia Invaded Ukraine, Thousands of Russians Came To Freedom Finance (Kazakhstan) To Open Accounts And Transfer Their Assets”– Former Freedom Finance Employee

Since the inva­sion of Ukraine, Kazakhstan has tried to bal­ance the role of being a key Russian ally while main­tain­ing cor­dial rela­tions with the West.There is grow­ing evi­dence, and con­cern from the U.S. Treasury Department, that Kazakhstan has become the “Kremlin´s Secret Ally”, help­ing Russia cir­cum­vent wartime sanc­tions, mov­ing banned goods in and help­ing hun­dreds of thou­sands of Russians move mon­ey out.As such, Kazakhstan is an impor­tant bridge­head for Freedom from which it can con­tin­ue to attract Russian mon­ey while retain­ing access to glob­al markets.A recent for­mer employ­ee of Freedom Finance´s bro­ker­age and bank­ing in Kazakhstan said he had wit­nessed a sharp, ini­tial upturn in Russian mon­ey mov­ing via Kazakhstan:

After Russia invad­ed Ukraine, thou­sands of Russians came to Freedom Finance (Kazakhstan) to open accounts and trans­fer their assets.”

A for­mer employ­ee of Freedom Holding from London described the company´s scram­ble to pre­pare for the con­se­quences of the 2022 inva­sion of Ukraine as “a process of tak­ing out Russian busi­ness from our holding”.They told us that part of that plan includ­ed han­dling Russian-fac­ing busi­ness from Kazakhstan:

Still Kazakh mar­ket is very close to Russian mar­ket, like ter­ri­to­ri­al­ly and every­thing, and we still can take care of the clients from Kazakh offices and stuff.”

Freedom Finance In Russia and Kazakhstan Has Helped Shift Funds From Sanctioned Banks

For Example, On April 6, 2022, The U.S. Hit Alfa Bank With the Most Severe International “Full Blocking Sanctions”, Along With An Asset Freeze

Days Later, Freedom Advertised an Easy-To-Use Service to Help Clients Shift Assets Out of Alfa Bank

Alfa Bank, Russia’s largest pri­vate bank, had been sub­ject to U.S. sanc­tions since the start of the inva­sion of Ukraine in February 2022. Alfa´s founder, sanc­tioned mul­ti-bil­lion­aire oli­garch Mikhail Fridman, is report­ed­ly a close asso­ciate of Russian President Vladmir Putin, described as an “enabler of Putin´s inner circle”.On April 6, 2022, the White House and EU hit Alfa Bank with “full block­ing sanc­tions” – some of the most severe U.S. sanc­tions. [1,2] The new mea­sures meant cus­tomers would lose access to for­eign secu­ri­ties and all trans­ac­tions would be frozen.The move effec­tive­ly pro­hibits any U.S. cit­i­zen or enti­ty doing busi­ness with the bank. A White House state­ment announc­ing the sanc­tions said:

This action will freeze any of Sberbank’s and Alfa Bank’s assets touch­ing the U.S finan­cial sys­tem and pro­hib­it U.S. per­sons from doing busi­ness with them…Alfa Bank is Russia’s largest pri­vate­ly-owned finan­cial insti­tu­tion and Russia’s fourth largest finan­cial insti­tu­tion overall.”

The U.S. Treasury set a dead­line of until May 6, 2022 for all trans­ac­tions with Alfa Bank to be ter­mi­nat­ed. Freedom Finance Russia (before it claimed to have been ‘divest­ed’) stepped in to facil­i­tate mov­ing cus­tomer assets from the already sanc­tioned bank, when many oth­ers bro­ker­ages wouldn’t.Freedom Finance Russia open­ly tout­ed this ser­vice, accord­ing to archived copies of its web­site, stat­ing “all you need to do is open an account (with Freedom Finance).”

(Source: Translation from Freedom Finance Website Archive)

Four Of Russia’s “Financial Elite” Tied To Alfa Group, Including Its Founder, Were Sanctioned By The U.S. Treasury Only Days Ago On August 11, 2023

Sanctions relat­ed to Alfa Group con­tin­ue to be active and ongo­ing. Days ago, the U.S. Department of the Treasury announced new sanc­tions on “promi­nent mem­bers of Russia’s finan­cial elite”.New sanc­tions tar­get­ed the founder and super­vi­so­ry board of Alfa Group. Deputy Secretary of the Treasury Wally Adeyemo commented:

Wealthy Russian elites should dis­abuse them­selves of the notion that they can oper­ate busi­ness as usu­al while the Kremlin wages war against the Ukrainian peo­ple. Our inter­na­tion­al coali­tion will con­tin­ue to hold account­able those enabling the unjus­ti­fied and unpro­voked inva­sion of Ukraine.”

Despite The Sanctions, FFIN Belize Still Advertises The Ability To Send Rubles Via Alfa Bank

This Allows Customers To Funnel Rubles Via A Banned Russian Bank Into the U.S. Stock Market

Freedom con­tin­ues to pub­licly offer clients ways to cir­cum­vent sanc­tions through Alfa Bank.Turlov´s pri­vate­ly-owned FFIN Belize entity’s web­site, which dis­plays a 2023 copy­right, offers cus­tomers two options to fund their bro­ker­age accounts in Russian rubles by deposit­ing funds into FFIN Belize accounts in Moscow. One option is with Alfa Bank.

(Source: FFIN Belize web­site, trans­lat­ed)

In short, FFIN Belize offers Russians a path to fun­nel rubles via one of Russia´s most heav­i­ly sanc­tioned banks through a Belize-licensed bro­ker­age right onto the U.S. stock market.One of the for­mer senior exec­u­tives we spoke to explained that clients could deposit funds in rubles or oth­er cur­ren­cies in Russia and receive funds back from FFIN Belize in U.S. dol­lars and/or Emirati Dirham to accounts any­where in the world.

Several Months After Sanctions Were Imposed On Russian VTB Bank, Its Customers Shared Tips Over A Telegram Channel On Moving Money From VTB To Freedom Finance In Kazakhstan

Alfa Bank is not the only exam­ple where Freedom appears to have helped clients move assets out of a sanc­tioned Russian bank.On February 24, 2022, the U.S. Treasury announced full block­ing sanc­tions against VTB, the sec­ond largest Russian bank, per a press release. Despite this, we found exam­ples of cus­tomers get­ting around these sanc­tions and trans­fer­ring funds via VTB into Freedom Finance.

For exam­ple, on a Telegram chan­nel, trans­lat­ed as “Freedom Finance Kazakhstan – CHAT”, mem­bers shared advice on mov­ing funds via Russia´s VTB Bank to Freedom Finance in Kazakhstan.[14]

(Source: “Freedom Finance Kazakhstan – CHAT” on Telegram, dat­ed 14 July 2022, left: English trans­la­tion right: original)

Customers dis­cussed a sim­i­lar VTB scheme in anoth­er online pub­lic forum on the pop­u­lar Russian trav­el site, under a head­ing trans­lat­ed as “trans­fer­ring mon­ey from Russia to your account in Kazakhstan”. The posts name Freedom Finance Kazakhstan as a bank accept­ing trans­fers from VTB.The scheme was explained by a user as involv­ing a mul­ti lay­ered trans­ac­tion: 1) Purchase Kazakh Tenge cur­ren­cy through VTB; 2) Withdraw funds to a VTB Account; 3) Send the funds to Freedom Finance. [Post 5340]

One user on July 5th, 2022 stat­ed that Freedom Finance had accept­ed this type of trans­fer, while anoth­er Kazakh bank, BCC, had reject­ed it.

(Source: Awd.Ru Forum [Post 1215])

Forbes Russia: Sanctioned Tinkoff Bank Advised Its Customers To Open Accounts With Freedom Bank Kazakhstan

Amid the influx of Russians to Kazakhstan, Tinkoff Bank – placed on EU and UK sanc­tions lists in February 2023 and May 2023, and on the U.S. sanc­tions list on July 20, 2023– advised its pre­mi­um cus­tomers to open accounts remote­ly with Freedom Bank Kazakhstan, accord­ing to Forbes Russia[15][16]The head of Tinkoff Bank’s invest­ment arm, Tinkoff Investments, is Dmitry Panchenko, a long­time asso­ciate of Turlov who was Deputy CEO of Freedom Finance RU from 2011–2019, accord­ing to his LinkedIn pro­file.


In sum, we are left to assume that Freedom Holding’s growth in Kazakhstan is like­ly to have come from using Kazakhstan as a sur­rep­ti­tious bridge into Russia, rather than organ­ic domes­tic growth.

Overall: We Find It Unfathomable That A U.S.-Listed Public Company Trading On The Nasdaq Exchange Has Brazenly Worked To Systematically Avert U.S. Sanctions For Years

The U.S. gov­ern­ment has enforced its Russian sanc­tions through an inten­sive glob­al campaign:

We’ve ground­ed planes in Switzerland and the Middle East. We’ve arrest­ed smug­glers in Italy, in Germany, in Latvia. And we’ve charged mon­ey laun­der­ers in the U.K. So basi­cal­ly, what we’ve shown is there’s no place to hide,” U.S. Deputy Attorney General Lisa Monaco told 60 Minutes.

Given these ongo­ing wide­spread inter­na­tion­al enforce­ment efforts, we find sur­pris­ing that Freedom has man­aged to hide in plain sight as a U.S.-listed pub­lic com­pa­ny trad­ing on the Nasdaq.

Part II: 25% Of Freedom’s Revenue Is Derived From One Opaque Related Party In Belize With Hallmarks of Fake Revenue

Beyond sanc­tions, Freedom seems to be engaged in a broad vari­ety of cor­po­rate malfea­sance involv­ing the same Belizean enti­ty pri­vate­ly owned by its Chairman & CEO, Timur Turlov.Normally when one cus­tomer makes up a con­sid­er­able con­cen­tra­tion of a pub­lic company’s rev­enue, investors are pro­vid­ed thor­ough detail on the relationship.In the case of Freedom, its largest con­trib­u­tor to rev­enue comes from CEO Timur Turlov’s “black box” Belizean enti­ty. Given Turlov’s unique insight into this “cus­tomer”, these cir­cum­stances would nor­mal­ly prompt ful­some dis­clo­sure about its oper­a­tions.[17]Except, in this case of Freedom’s largest con­trib­u­tor to rev­enue, we get the oppo­site: pal­try dis­clo­sure and ques­tion­able finan­cials from an enti­ty with vir­tu­al­ly no phys­i­cal signs of existence.

2018–2020: Mysterious Unnamed Related Party Customers Drive Freedom’s Revenue Growth, Accounting for 67.5% Of Total Revenue By 2020

In the lead up to Freedom’s uplist­ing to NASDAQ in 2019, pres­sure to show sol­id per­for­mance mount­ed. SEC fil­ings show that Freedom’s reliance on relat­ed par­ties for its claimed bro­ker­age rev­enue exploded.Related par­ties as a per­cent­age of total rev­enue increased from 10.9% in fis­cal year 2018, to 52% in fis­cal year 2019. By fis­cal year 2020, relat­ed par­ties account­ed for 67.5% of Freedom’s total report­ed revenue.

(Source: SEC Filings, 1,2,3,4)

Despite the mas­sive reliance on, and risk tied to these relat­ed par­ties, Freedom chose not to dis­close details on the spe­cif­ic enti­ties involved. Instead, it list­ed rev­enue val­ues for unnamed relat­ed par­ty trans­ac­tions, such as Note 23 in Freedom’s 2020 annu­al report, dis­clos­ing com­mis­sion income earned from unnamed relat­ed parties:

(Source: 2020 10‑K [Pg. F‑30], num­bers in thousands)

Lack Of Related Party Disclosures In 2019 and 2020 Later Resulted In Freedom’s Auditors Being Barred And Fined By The PCAOB For Violating Audit Standards

This lack of dis­clo­sure didn’t go unno­ticed by reg­u­la­tors. In 2022, the Public Company Accounting Oversight Board (PCAOB) announced sanc­tions against three accoun­tants at Freedom’s audi­tor, Utah-based WSRP, for fail­ures relat­ing to its account­ing of Freedom’s rela­tion­ship with relat­ed par­ties.[18]

(Source: PCAOB)

According to the PCAOB, two WSRP part­ners failed to “Identify that Freedom’s 2019 and 2020 finan­cial state­ments did not con­tain nec­es­sary dis­clo­sures regard­ing a relat­ed par­ty and its rela­tion­ship with Freedom and its CEO”.The PCAOB order specif­i­cal­ly iden­ti­fied the enti­ty as a “Belize Affiliate” owned by Freedom’s CEO.

(Source: PCAOB Order[19]

2021: Following An Online Exposé, Freedom Began Disclosing Details About This Key Related Party Entity, Revealing It Was A Belize-Registered Brokerage Firm Owned By Chairman & CEO Turlov

A December 2020 exposé by the Foundation for Financial Journalism first revealed the extent of Freedom’s deal­ings with the unnamed relat­ed par­ty dri­ving rev­enue growth, called FFIN Brokerage Services (now renamed Freedom Securities Trading and referred to here as “FFIN Belize”).Prior to 2021, Freedom’s annu­al and quar­ter­ly SEC fil­ings made no ref­er­ence to FFIN Belize dri­ving relat­ed par­ty rev­enue growth.[20]Following the exposé, in its 2021 annu­al report, Freedom dis­closed that FFIN Belize was pri­vate­ly con­trolled by Turlov and that the enti­ty posed a sig­nif­i­cant risk to Freedom due to rev­enue con­cen­tra­tion and “evolv­ing mar­ket regulations”.

(Source: 2021 Annual Report Pg. 28)

In restat­ed SEC fil­ings for fis­cal year 2021, Freedom dis­closed that FFIN Belize account­ed for a mate­r­i­al 19% of Freedom’s total rev­enue. [Pgs. 62, 65]

2021: FFIN Belize Provided One-Off Audited Financials On Its Website

The Statements Showed $2.5 Billion In Both Trade Receivables And Trade Payables, With An Inexplicably Low Cash Balance Of Only $5.4 Million, Red Flags Of Circular Fake Revenue Transactions

An Audit Of FFIN Belize Has Not Been Posted Since

Several months after the exposé and around the same time as the new dis­clo­sure in Freedom’s SEC fil­ings, a finan­cial state­ment for the year end­ed 2020 was post­ed to FFIN Belize’s website.The finan­cial state­ment rais­es more ques­tions than it answers. FFIN Belize report­ed only $5.4 mil­lion in cash and min­i­mal oth­er account bal­ances, while also report­ing over $2.465 bil­lion in receiv­ables and $2.562 bil­lion of payables balances.In oth­er words, the enti­ty most cru­cial to Freedom’s top line sup­pos­ed­ly car­ried a cash posi­tion of just ~0.2% of its payable and receiv­able accounts, indi­cat­ing that these accounts are not set­tling in cash in any mean­ing­ful fashion.For con­text, if FFIN hypo­thet­i­cal­ly con­vert­ed a pal­try 5% of its receiv­ables to cash, it would be expect­ed to have ~$123 mil­lion on its books, near­ly 25 times what it held.

We have not been able to find any updates on FFIN’s finan­cial state­ments since the lone 2020 audit, but we think Freedom should share all FFIN Belize audits with investors giv­en its shared own­er­ship and crit­i­cal impor­tance to the pub­lic entity.

Freedom Has Reported An Increase Of 306% In Related Party Revenue From FFIN Belize Since 2020

Freedom Reported Fee and Commission Revenue Of $196.3 Million From FFIN Belize In Fiscal Year 2023

The claimed rev­enue con­tri­bu­tion from FFIN Belize has grown rapid­ly from $48.4 mil­lion in 2020 to $196.3 mil­lion in fis­cal year 2023. This rep­re­sent­ed over 29% of Freedom Holding’s total rev­enue in the past 3 years.[21] [Pgs. 63, 125 & Pgs. 62, 95]

(Source: Freedom SEC Filings, Pg. 125 & Pg. 95Pgs. 62, 65)

Freedom Has Directed Money Right Back With $289 Million In Margin Loans To FFIN Belize Customers, Representing 77% Of Its Margin Loan Receivables

Freedom Claims In Filings That It “Do(es) Not Have Direct Access To Information On FFIN Belize’s Customers” Relating To The Claimed Loan Balances, Despite Freedom CEO Turlov Owning Both Companies

Beyond fee and com­mis­sion rev­enue, Freedom report­ed that as of 2023, it had $289 mil­lion of out­stand­ing mar­gin loans due from FFIN Belize, rep­re­sent­ing 77% of its mar­gin loan receiv­ables. [Pg. 145]With such an acute lev­el of risk tied to an opaque relat­ed par­ty, one might expect Freedom to dis­close sig­nif­i­cant infor­ma­tion, but Freedom pro­vides no infor­ma­tion on the ben­e­fi­cia­ries of these loans.Even stranger is Freedom’s claim that it can’t pro­vide more detail because it does not have “direct access to infor­ma­tion on FFIN Belize’s cus­tomers,” despite Freedom’s own Chairman & CEO run­ning and con­trol­ling the entity.Per the company’s December 2022 10‑Q:

For mar­gin lend­ing to FFIN Brokerage [Belize], these risks may be increased by the fact that we do not have direct access to infor­ma­tion on FFIN Brokerage’s [Belize’s] cus­tomers, who are the ulti­mate recip­i­ents of the loans.” [Pg. 96]

In its March 2023 10‑K, Freedom reit­er­at­ed that “we do not cur­rent­ly have direct access to FST Belize’s cus­tomer check sys­tems.” [Pg. 25]Because FFIN Belize is tech­ni­cal­ly pri­vate­ly con­trolled, it is not sub­ject to the same SEC report­ing require­ments and dis­clo­sure rules as Freedom’s list­ed enti­ty. This means that, despite Turlov over­see­ing the bro­ker­age and like­ly hav­ing a full grasp on its busi­ness, this cru­cial con­trib­u­tor to the list­ed entity’s finan­cials, is essen­tial­ly a con­ve­nient­ly timed, rapid­ly grow­ing, black box – all by Turlov’s choice.In sum­ma­ry, FFIN Belize’s finan­cials indi­cate that Freedom is like­ly using cus­tomer assets to report fake rev­enue through opaque cir­cu­lar trans­ac­tions with Turlov enti­ties and affiliates.

Part III: Freedom’s Key Related-Party Belize Entity Commingles Customer Assets, Placing Them At Extreme Risk

As detailed ear­li­er in Part I, per inter­views with for­mer employ­ees, Freedom’s ‘high-risk’ cus­tomers are divert­ed to FFIN Belize, a struc­ture that effec­tive­ly bypass­es Anti-Money Laundering (AML) and Know-Your-Customer (KYC) require­ments, as well as evades sanc­tions and oth­er poten­tial com­pli­ance issues.Once those assets are in the con­trol of the Belize enti­ty, they appear to be used in sus­pi­cious cir­cu­lar rev­enue trans­ac­tions that inflate Freedom’s claimed rev­enue to investors, as detailed in Part II.Beyond those crit­i­cal issues, we have iden­ti­fied signs that FFIN Belize’s cus­tomer assets have been fur­ther mis­used by Turlov.Freedom’s cus­tomers seem to believe the company’s relat­ed-par­ty Belize enti­ty is a trust­wor­thy tool for deploy­ing cap­i­tal to west­ern mar­kets. But evi­dence shows that Turlov has com­min­gled the entity’s assets and used them to take on mas­sive lever­age and trad­ing risks, expos­ing cus­tomers to poten­tial cap­i­tal loss.

Buried Within FFIN Belize’s Risk Disclosures Is Mention Of A “Special Brokerage Account”, Where FFIN Belize Says It Can Commingle Client Funds And Effectively Do Whatever It Wants With Them For Its “Own Interests”

Every cred­i­ble bro­ker­age and bank­ing firm seg­re­gates cus­tomer assets in order to ringfence and pro­tect them in case the firm runs into trou­ble. Most major crises involv­ing failed bro­ker­age firms (FTX, Celsius Network and MF Global, among many exam­ples) have occurred because the firms in ques­tion vio­lat­ed this basic cus­tomer safe­ty principle.FFIN Belize’s web­site con­tains a risk dis­clo­sure state­ment, which deals with “risks asso­ci­at­ed with oper­a­tions in the secu­ri­ties mar­ket”. Within it, FFIN Belize deems its clients to have accept­ed and acknowl­edged the risks of high­ly unusu­al oper­a­tions, includ­ing allow­ing the enti­ty to use their funds/securities “in its own inter­ests” via a “spe­cial bro­ker­age account”. [Pg. 11]

FFIN Belize admits it uni­fies client funds in one account, which may lead to customer’s mon­ey being writ­ten off. [Pg. 12] FFIN Belize also states “the Company shall have the right to use the Client’s mon­e­tary funds/securities in its own inter­ests free of charge”.

In oth­er words, cus­tomers of FFIN Belize are allow­ing their funds or secu­ri­ties to be used dis­cre­tionar­i­ly, for pur­pos­es unknown, by Turlov. The risk state­ment even acknowl­edges the “pecu­liar­i­ties of the func­tion­ing of spe­cial bro­ker­age accounts”, like­ly giv­en that it vio­lates the bro­ker­age industry’s sin­gle most crit­i­cal cus­tomer safe­guard. [Pg. 12]We believe such dis­clo­sures are an attempt to pro­vide legal cov­er and carte blanche autho­riza­tion for high­ly irreg­u­lar con­duct that puts cus­tomer assets at extreme risk.

Unlike Other Brokerage Firms, FFIN Belize’s Audited Financials Lack Details On Segregation Of Customer Assets From Company Assets

As we not­ed above, FFIN Belize’s web­site added a finan­cial state­ment from the year end­ed 2020 that showed hall­marks of cir­cu­lar rev­enue trans­ac­tions. The same finan­cial state­ments also raise ques­tions about mis­ap­pro­pri­a­tion of cus­tomer funds.FFIN Belize’s audit did not report any “ringfenced” cus­tomer assets, a dis­tinc­tion that makes clear which assets belong to the bro­ker­age ver­sus the cus­tomer. This stands at odds with vir­tu­al­ly every oth­er major bro­ker­age busi­ness.[22]For U.S. issuers, SEC Rule 15c3‑3 gov­erns seg­re­ga­tion of client assets from the firm’s assets. The pur­pose of such seg­re­ga­tion is to allow clients to obtain their assets if the firm becomes insol­vent. Regulatory agen­cies like FINRA also note the impor­tance of such oblig­a­tions as a safe­guard for cus­tomer assets:

Firms are oblig­at­ed to main­tain cus­tody of cus­tomer secu­ri­ties and safe­guard cus­tomer cash by seg­re­gat­ing these assets from the firm’s pro­pri­etary busi­ness activ­i­ties, and prompt­ly deliv­er to their own­er upon request.”

Roping Customers In: In August Of 2021, Turlov Claimed That Freedom Clients Could Get Hot IPO Allocations Through FFIN Belize, Generating 59% Returns On Average

When Pressed By Media, Turlov Claimed The IPO Allocations Were Obtained From An Unnamed Hedge Fund

A Freedom Former Account Manager Told Us “No One Knows” Who The Hedge Fund Is And Doubted Whether It Really Exists

IPO allo­ca­tions are near-impos­si­ble to source for retail traders and even dif­fi­cult to source for many of the most con­nect­ed investors on Wall Street.Yet one key offer­ing pro­mot­ed by Freedom has been its abil­i­ty to give cus­tomers access to pop­u­lar IPOs.

(Source: January 2023 archive of Freedom24 website)

When ques­tioned on this offer­ing, Turlov claimed that lit­tle-known Freedom sources its numer­ous IPO allo­ca­tions through shad­owy means, explain­ing to Bloomberg in August 2021 that its IPO offer­ings were rout­ed through a “mys­tery hedge fund”.

(Source: Bloomberg)

According to the arti­cle, Freedom’s relat­ed par­ty, FFIN Belize, pur­chased IPO stock from a “mys­tery” affil­i­at­ed hedge fund which Freedom then monetizes:

Turlov has that Belize-reg­is­tered enti­ty, FFIN Brokerage Services Inc., buy it [IPO stock from the affil­i­ate] and even­tu­al­ly pass it to Freedom for a fee.” 

No more detail on the mys­tery fund was pro­vid­ed, beg­ging obvi­ous ques­tions as to why this unnamed fund is so com­fort­able hand­ing gen­er­ous rev­enue eco­nom­ics to FFIN Belize. Turlov seems to have made no effort to explain why the mys­tery fund can’t sim­ply work with Freedom direct­ly and instead must go through Turlov’s pri­vate Belizean enti­ty. This chart shows the unnec­es­sar­i­ly con­vo­lut­ed process:

(Source: Hindenburg Research, Bloomberg Article)

To learn more about the hedge fund, we reached out to a for­mer Freedom account man­ag­er who told us they were unaware of the mys­tery hedge fund. “No one knows”, they said when asked about who it was. They added:

My sus­pi­cion is that there is no actu­al IPO…that you have a kind of stock allo­ca­tion, but you have some kind of deriv­a­tives…. I don’t think that it’s a real­ly actu­al allo­ca­tion and my mind I think that this is some kind of deriv­a­tives.” [23]

Roping Customers In: In October Of 2021, Kazakhstan’s Financial Market Regulator Blacklisted FFIN Belize For ‘Signs Of Illegal Activity’ Relating To Offering Products That Guarantee Returns

A trait that many invest­ment schemes share, par­tic­u­lar­ly Ponzi schemes, is entic­ing in new mon­ey with promis­es of high returns, whether IPO returns or oth­ers. “Be high­ly sus­pi­cious of any ‘guar­an­teed’ invest­ment oppor­tu­ni­ty,” the SEC warns investors.On var­i­ous Russian lan­guage mes­sage boards, Freedom users have detailed sus­pi­cious­ly high, guar­an­teed return prod­ucts, such as the one below claim­ing a 25% guar­an­teed return.

(Source: Forums, translated)

The issue even­tu­al­ly caught the eye of Kazakhstan’s finan­cial mar­ket reg­u­la­tor, which black­list­ed Freedom’s key relat­ed par­ty enti­ty, FFIN Belize, in October of 2021 for ‘signs of ille­gal activ­i­ty in the ter­ri­to­ry of Kazakhstan’ relat­ing to offer­ing prod­ucts that guar­an­tee returns. The black­list does not shut down FFIN’s oper­a­tions in the coun­try, but serves as a clear warn­ing to poten­tial customers.In a media state­ment, FFIN Belize denied it was engaged in any ille­gal activity.

A sub­se­quent February 2023 Kazakh gov­ern­ment notice still showed FFIN on the blacklist.

A Former Freedom Senior Executive Explained That FFIN Belize Received Funds Through Freedom Holdings Offices In Russia,But Wasn’t Actually Trading Securities As Promised 

We Found Out That They Don’t Actually Execute Trades. So Where The Money Goes, Nobody Knows”

One for­mer senior Freedom exec­u­tive we spoke with was very famil­iar with the oper­a­tions of FFIN Belize while they were at the com­pa­ny around 2020.Based on their first-hand expe­ri­ence, the for­mer exec­u­tive told us that Freedom Russia clients were rou­tine­ly advised to open accounts with the Belize enti­ty to gain bet­ter access to U.S. stock markets.Freedom Holding’s infra­struc­ture was effec­tive­ly serv­ing as a front office to fun­nel clients to Turlov´s pri­vate­ly-owned off­shore enti­ty, we were told:

So the traders, the trad­ing desk, the back office lawyers, they were all in Moscow. But as far as I know, the trade desk has moved to Cyprus now. In Belize there’s no pres­ence at all. Never has been any pres­ence in Belize.”

So they (Freedom Holding) have a Russian license from the Central Bank of Russia to pro­vide bro­ker­age ser­vices. And they have offices in almost every city in Russia. There’s like 40 offices, right? What hap­pens when a client goes in there? He goes, well, through this enti­ty, there’s a bank and there’s a bro­ker­age you can only trade like a hand­ful of secu­ri­ties. If you want real access to US mar­kets, if you want access to IPOs, U.S. IPOs, then you need to become a client of Freedom Belize. So basi­cal­ly, every client that comes in into a Russian office is divert­ed to Belize.”[24]

They also told us that FFIN Belize fre­quent­ly didn’t exe­cute client trades:

So they would take the cash and then they basi­cal­ly would send them a report that now your account has this much cash you can trade. Then we found out that they don’t actu­al­ly exe­cute trades. So where the mon­ey goes, nobody knows.” [25]

Former Freedom Executive: “He [Turlov] Just Pays That Company Commission Every Quarter Or Whatever He Thinks He Feels Like”

The for­mer employ­ee con­tin­ued to explain a sit­u­a­tion where FFIN Belize received cus­tomer assets but wasn’t trad­ing the secu­ri­ties in ques­tion. Instead, Turlov was using the com­pa­ny as “his own per­son­al pig­gy bank”, we were told:

Because Freedom Belize is not part of Freedom Holding. So essen­tial­ly, since Freedom Belize is his own per­son­al pig­gy bank, let’s call it that, it’s the largest client of Freedom Europe, which is Cyprus. Then he just pays that com­pa­ny com­mis­sion every quar­ter or what­ev­er he thinks he feels like.”

The exec­u­tive told us that pri­or to his leav­ing the firm he had an argu­ment with Turlov regard­ing the “Belize” operations:

I had the ques­tion. I’m like, well, what do you do with the mon­ey? You just col­lect­ed bil­lions of dol­lars into this Belize enti­ty. If you don’t make the trades, what do you do with the mon­ey? And then he (Turlov) goes, it’s a good busi­ness when sta­tis­ti­cal­ly 90% of retail traders lose mon­ey over time. It’s a good busi­ness mod­el. That was his actu­al words to me, right?”

He then shared his over­all take:

So they just do like some kind of fixed income stuff and kind of hope that the client will even­tu­al­ly lose mon­ey and they have to give them less than he gave them orig­i­nal­ly. That’s the busi­ness mod­el of the Belize entity.”

Another Former Freedom Employee Echoed: “I Wouldn’t Even Be Surprised If All Of This Was All Manipulated And They Weren’t Even Investing In Stocks”

Another for­mer employ­ee for Freedom in Dubai echoed that there was no clar­i­ty on how actu­al trad­ing was exe­cut­ed, if at all:

I’ll be hon­est, my under­stand­ing of how this worked was that, you know, the actu­al client mon­ey, like actu­al orig­i­nal clients, nev­er real­ly made it any­where. So those were just kept in as buffer stock or some­thing in these enti­ties in Belize and Cyprus, where­as, you know, they were using some fund­ing or… For them, I wouldn’t even be sur­prised if all of this was all manip­u­lat­ed and they weren’t even invest­ing in stocks.”

Combined with lin­ger­ing ques­tions about its rev­enue, we believe FFIN Belize is mis­ap­pro­pri­at­ing, mis­us­ing, or sim­ply hold­ing its bro­ker­age cus­tomers mon­ey instead of invest­ing it.

Part IV: Freedom’s Massive Positions In Illiquid And Allegedly Manipulated Bonds, Financed With Short-Term Loans

Once com­min­gled, Freedom seems be gam­bling cus­tomer assets, tak­ing on mas­sive, lever­aged mar­ket risk.Despite Freedom’s pri­ma­ry focus being the retail bro­ker­age indus­try, the com­pa­ny has gen­er­at­ed 9%-59% of its rev­enue from pro­pri­etary trad­ing from 2017 to present, with no report­ed down years.[26]In 2023, Freedom report­ed that pro­pri­etary trad­ing con­tributed over $71 mil­lion, or 9% of over­all revenue.

(Source: Hindenburg analy­sis of com­pa­ny filings)

Freedom Claims It Has “Conservative Risk Management” Saying It “Limit(s) The Amount of Credit Exposure To Any One Issuer”

SEC Filings Show That Freedom Invested 35% Of Its Gross Principal Trading Balance, Amounting to $835 Million, In the Debt Of One Kazakh Issuer

The Position Is Larger Than Freedom’s Shareholder Equity Balance Of ~$777 Million

Freedom’s mas­sive pro­pri­etary gains come with seem­ing­ly lit­tle risk, accord­ing to Freedom’s 2022 annu­al report. The fil­ing said Freedom adheres to “con­ser­v­a­tive risk man­age­ment prin­ci­ples” with a focus on prin­ci­pal protection:

Our invest­ment poli­cies gen­er­al­ly require secu­ri­ties to be invest­ment grade and lim­it the amount of cred­it expo­sure to any one issuer or cus­tomer.” [Pg. 6]

According to Freedom’s finan­cial state­ments at the end of fis­cal year 2023, it held a $835 mil­lion dol­lar stake in the debt of an issuer called the Kazakhstan Sustainability Fund JSC, a fund owned by the National Bank of the Republic of Kazakhstan that sup­ports sec­ond tier Kazakh banks and pro­vides mort­gages in the coun­try. [Pg. 125]The posi­tion rep­re­sent­ed 35% of Freedom’s trad­ing bal­ance, as of the March 2023 annu­al report.

(Freedom Annual Report [Pg. 125]. Figures in thousands)

Leverage: Freedom Reported That Its $2.4 Billion Principal Trading Account Was Financed With ~$1.5 Billion in Short Term Liabilities That Had Maturities Under 30 Days

Freedom’s finan­cial state­ments dis­close that as of March 2023, its $2.4 bil­lion in trad­ing secu­ri­ties were financed large­ly with short term lever­age. [Pg. 39] The com­pa­ny dis­closed $1.5 bil­lion dol­lars in short term fund­ing from “secu­ri­ties sold under repur­chase agree­ments”, 96% of which had a matu­ri­ty of up to 30 days. [Pg. 135]

(Source: Freedom’s 2023 Annual Report Pg. 135)

Reliance on such high, short-term lever­age pos­es a sig­nif­i­cant risk if the liq­uid­i­ty or val­ue of the under­ly­ing col­lat­er­al suffers.

The Issuer’s Bonds Are Extremely Illiquid: The 30-Day Average Volume For All Bonds Of the Issuer Totaled $16.6 Million, Suggesting That Freedom Accounts For A Full 50 Days Of Trading Volume

While Freedom does not spec­i­fy exact­ly which bonds of the Kazakh Sustainability Fund it has invest­ed in, Bloomberg data on all 28 report­ed bonds from the issuer show the under­ly­ing secu­ri­ties were illiq­uid and appear to only trade by appoint­ment.[27]Of the 28 bonds, 13 had no vol­ume over the last 30 days. [28] The total 30-day aver­age vol­ume for all bonds of the issuer with vol­ume was $16.6 mil­lion, sug­gest­ing that Freedom holds at least a full 50 days of bond vol­ume.[29]Given that Freedom has financed the posi­tion with ~$1.5 bil­lion in 30-day or short­er financ­ing, the issuer’s illiq­uid­i­ty seems to pose a sub­stan­tial risk, with like­ly mas­sive price impact should Freedom attempt to exit its position.This risk is enhanced giv­en that Freedom owns rough­ly 38% of the total issuance of the Kazakh Sustainability Fund, mak­ing it a major hold­er.[30]

Freedom’s Main Kazakh Bond Investment Yields Are Lower Than The Cost To Finance The Investments

We Estimate That Freedom Is Losing $0.5 Million To $33 Million Per Year On Its Concentrated, Leveraged, Negative Carry Investment

Freedom’s financ­ing strat­e­gy dis­cussed above can be described as hav­ing “neg­a­tive-car­ry”, a sit­u­a­tion that aris­es when an invest­ment returns less than the cost of financ­ing the investment.

We esti­mate that Freedom’s $835 mil­lion stake in the Kazakh Sustainability Fund is cur­rent­ly gen­er­at­ing a low­er return than the rate Freedom bor­rows at via short term repos (repur­chase agree­ments) to finance itself.

The aver­age mid-mar­ket yield to matu­ri­ty (“Mid YTM”) of the 28 issues of the Kazakh Sustainability Fund we ana­lyzed was 15.91%, per Bloomberg.[31] Some bonds had yields as low as 12.07%.[32]By con­trast, Freedom dis­clos­es its bor­row­ing through repos of “non-US sov­er­eign debt” and “cor­po­rate debt” at high­er aver­age inter­est rates of 15.98% and 16.07%, respec­tive­ly, per its March 2023 annu­al report. [Pg. 135][33] This implies on aver­age a neg­a­tive, loss-mak­ing car­ry of between 0.06%-4%. [Pg. 135]

Freedom Aggressively Increased Its Position In The Bond Issuer By 2.4x, From $297 Million In December 2021 To $720 Million In December 2022

In January 2023, Kazakhstan’s Financial Regulator Reported That The Issuer’s Bonds Were Being Manipulated

Freedom Was Also A Market Maker Of The Issuer’s Bonds, Demonstrating Both A Motive And Opportunity To Manipulate Prices Higher

Worse yet, evi­dence sug­gests the price of Freedom’s bonds may have been manip­u­lat­ed, staving off report­ing of poten­tial cat­a­stroph­ic losses.The Kazakh Financial Regulator had con­clud­ed an inves­ti­ga­tion in January 2023, find­ing that 22 deals with Kazakhstan Sustainability Fund JSC’s bonds were trans­ac­tions “com­mit­ted for the pur­pose of manip­u­la­tion”, accord­ing to report­ing by Bloomberg.

(Source: Bloomberg)

The reg­u­la­tor has not yet spec­i­fied which mar­ket par­tic­i­pants engaged in the manipulation.

(Source: Bloomberg)

Freedom’s hold­ings in the Kazakh Sustainability Fund spiked in the peri­od when bond prices were held arti­fi­cial­ly high, indi­cat­ing that Freedom’s aggres­sive pur­chas­es may have played a role in dri­ving the low yields and con­se­quent high prices.Kazakhstan’s stock exchange web­site, KASE, shows that Freedom is the mar­ket mak­er in mul­ti­ple secu­ri­ties issued by the issuer, Kazakhstan’s Sustainability Fund.[34]

In Short, Freedom Seems To Be Relying On Short Term Expensive Financing To Hold A Massive, Illiquid, Money-Losing Position In Bonds That Have Likely Been Propped Up By Turlov’s Own Concentrated Purchases

Freedom’s bond posi­tion rep­re­sents more than its entire share­hold­er equi­ty bal­ance, fund­ed by short-term, expen­sive debt. This strikes us as a com­bi­na­tion of the most dan­ger­ous ele­ments of finance, pos­ing an exis­ten­tial risk to Freedom and any of its com­min­gled cus­tomer accounts.

Part V: Hallmarks of Market Manipulation In Freedom’s Own Stock

Freedom’s Stock Trades With Inexplicably Steady Volume And Price, Seemingly Impervious To (i) Market Events Like The March 2023 Financial Sector Stress And (ii) Company Specific Issues Such As Late Financials, Regulatory Sanctions And Auditor Resignations

Despite Freedom’s stock trad­ing at ele­vat­ed lev­els rel­a­tive to its peers and its gen­er­al risk pro­file, the com­pa­ny trades remark­ably steadi­ly on NASDAQ, with a low beta of about 1.12 and low volatil­i­ty, seem­ing­ly regard­less of mar­ket events.For exam­ple, the glob­al finan­cial sec­tor suf­fered in March 2023 with the implo­sion of Silicon Valley Bank and the cri­sis at Credit Suisse. Regional banks and bro­ker­ages sold off in March and have yet to ful­ly recov­er. Yet Freedom’s stock was seem­ing­ly imper­vi­ous to wider mar­ket forces, reach­ing a 5+ year high rel­a­tive to com­pa­ra­bles, even while oth­er bro­ker­ages fell along with the sector.

(Source: YCharts)

This is but one exam­ple of Freedom’s imper­vi­ous­ness to many nor­mal­ly mar­ket-mov­ing events.

Over the Last 1.5 Years, Over 59% of Trading in Freedom’s Stock Has Been Driven by Two Tiny Brokerage Firms With Ties to Freedom

In our effort to under­stand Freedom’s irreg­u­lar trad­ing pat­terns, we noticed a glar­ing anomaly.Bloomberg col­lects data on trad­ing vol­ume that is self-report­ed by mar­ket par­tic­i­pants or report­ed by exchanges like NASDAQ (referred to as “ECNs”).[35]The data shows that two bro­kers, Lek Securities and Vision Financial Markets, col­lec­tive­ly com­prise only about 0.07% of trad­ing vol­ume on the NASDAQ over the past ~1.5 years (since January 2022) yet have com­prised ~60% of trad­ing vol­ume in Freedom’s stock over the same period.The met­rics alone are high­ly unusual—listed com­pa­nies are gen­er­al­ly trad­ed some­what in pro­por­tion to the gen­er­al mar­ket for brokerages.The con­cen­tra­tion of trad­ing in 2 bro­ker­ages sug­gests that only a very small num­ber of indi­vid­u­als com­prise the major­i­ty of the buy and sell vol­ume in Freedom’s shares, a hall­mark sign of mar­ket manipulation.Further, Lek Securities and Vision Markets have deeply entrenched rela­tion­ships with Freedom. Both bro­kers have exist­ing clear­ing agree­ments with Freedom, like­ly giv­ing them greater access and knowl­edge of Freedom’s operations.

  1. Lek is a clear­ing bro­ker for Freedom, accord­ing to a 2016 SEC fil­ing. Media also report­ed that Lek holds the IPO secu­ri­ties rout­ed through a “mys­tery hedge fund” on behalf of Freedom customers.
  2. Vision Financial Markets is also a clear­ing bro­ker for Freedom Finance Europe, accord­ing to an August 2022 announce­ment.

Suspicious Broker #1: Broker Lek Securities Accounted For Over 59% Trading Volume In Freedom In 2022 Despite Comprising A Miniscule 0.06% Of Trading Volume On The NASDAQ

Volume report­ed on Bloomberg shows that Lek Securities com­prised over 59% of trad­ing vol­ume in Freedom stock in cal­en­dar year 2022, reach­ing as high as 70% in one month alone.[36]

(Source: Bloomberg)

Such trad­ing is high­ly unusu­al, even more so giv­en Lek’s his­to­ry of facil­i­tat­ing manip­u­la­tive trad­ing through cen­tral Asia, accord­ing to the SEC.

In 2017, The SEC Charged Lek With Manipulative Trading Alongside A Ukrainian Brokerage Firm And Barred Its Founder Samuel Lek From The Securities Industry

SEC Complaint: “Lek Securities Opened The Gate To Allow The Schemes Into The U.S. Markets Despite Repeated Warnings That Its Customer Was Manipulating The Market”

In March 2017 the SEC charged Lek Securities along­side a Ukrainian bro­ker­age firm for manip­u­la­tive trad­ing that result­ed in almost $30 mil­lion of illic­it profits.

According to the SEC’s release, Lek was facil­i­tat­ing manip­u­la­tive trad­ing, includ­ing cross trad­ing and lay­er­ing, for Avalon, a Seychelles invest­ment firm, run out of Ukraine:

As alleged in our com­plaint, Avalon open­ly mar­ket­ed itself as a des­ti­na­tion for manip­u­la­tive trad­ing, and Lek Securities opened the gate to allow the schemes into the U.S. mar­kets despite repeat­ed warn­ings that its cus­tomer was manip­u­lat­ing the market,”

The SEC obtained a final judg­ment against Lek for ~$3 mil­lion in 2019 and its founder Samuel Lek was per­ma­nent­ly banned from the secu­ri­ties indus­try.[37]The SEC case wasn’t Lek’s only reg­u­la­to­ry infrac­tion. According to its FINRA report, Lek was the sub­ject of 42 reg­u­la­to­ry dis­clo­sure events.  As one exam­ple, in December 2019, the company’s FINRA bro­kercheck shows that Lek Securities had allowed cus­tomers to engage in ~$100 mil­lion of pen­ny-stock trades (receiv­ing $1.6 mil­lion in com­mis­sions) despite numer­ous red flags of fraud. [Pg. 42]

Suspicious Broker #2: Lek Securities Tapered Its Freedom Trading Volume Around Mid-2022 And Was Replaced By Another Small Broker, Vision Financial Markets

Vision Accounted For ~17% Of YTD 2023 Reported Trading Volume In Freedom Despite The Brokerage Comprising Only ~0.03% Of Nasdaq Volume

In June 2022, Freedom Finance Europe announced a new part­ner­ship with clear­ing bro­ker Vision Financial Markets, seem­ing­ly mov­ing away from its rela­tion­ship with LEK.

(Source: Freedom web­site [1,2])

ECN data shows that Vision became the key bro­ker effect­ing Freedom trad­ing vol­ume around that time.[38]

(Source: Bloomberg)

More specif­i­cal­ly, in June 2022, Lek and Vision each com­prised about 34% of the trad­ed vol­ume in Freedom. Lek Securities decreased sig­nif­i­cant­ly in July, account­ing for only 5% of the trad­ing vol­ume, while Vision account­ed for over 63%.

(Source: Bloomberg) 

Lek Securities then abrupt­ly dis­ap­peared from trans­act­ing in the company’s stock around August, while Vision stood at 56% of the volume.Current year to date vol­ume shows that Vision Financial Markets account­ed for ~17% of volume.

(Source: Bloomberg) 

Despite Being A Small Brokerage Firm, Vision Has Accumulated A Long Rap Sheet Of 26 Regulatory Sanctions

The Firm Was Barred By The National Futures Association In 2014, But Relaunched Shortly Thereafter With The Exact Same Management

It Was Subsequently Charged With A Range Of Failures Including Lack of Effective Anti-Money Laundering Procedures And “Failure To Prevent And Detect Potentially Manipulative Trading Activity”, According To FINRA And Nasdaq Enforcement Actions

For a rel­a­tive­ly small bro­ker­age firm, Vision has accu­mu­la­tive an impres­sive­ly long rap sheet of reg­u­la­to­ry infractions.In 2014, the National Futures Association barred Vision from the futures mar­kets over repeat­ed vio­la­tions includ­ing help­ing mis­ap­pro­pri­ate cus­tomer funds and use of decep­tive pro­mo­tion­al mate­ri­als. [Pgs. 2–3]

The same day the NFA announced it had barred Vision, the same man­age­ment team ini­ti­at­ed plans to relaunch.

(Source: Reuters)

While it might come as a sur­prise that a barred bro­ker­age firm can sim­ply relaunch instant­ly under the exact same man­age­ment, it like­ly won’t come as a sur­prise that Vision went on to accu­mu­late a rapid array of reg­u­la­to­ry sanctions.The firm dis­clos­es 26 dis­clos­able reg­u­la­to­ry sanc­tions, accord­ing to its FINRA BrokerCheck report.Among those, in March 2019, the SEC fined Vision for fail­ure to file Suspicious Activity Reports (SARs) for over hun­dreds of sus­pi­cious pen­ny stock transactions.

(Source: SEC press release)

In a 2020 civ­il suit, Vision was accused of a 5‑year fraud­u­lent trad­ing scheme to over­charge clients by $50 mil­lion from 2014 to 2019.In 2022, FINRA fined Vision for fail­ure to design and exe­cute an ade­quate anti-mon­ey laun­der­ing pro­gram. [Pg. 29] That same year, FINRA and NASDAQ fined Vision for “fail­ure to pre­vent and detect poten­tial­ly manip­u­la­tive trad­ing activ­i­ty”. [Pg. 28]Amidst this slew of reg­u­la­to­ry sanc­tions over fail­ures relat­ing to AML poli­cies and manip­u­la­tive trad­ing, Freedom entered into its clear­ing agree­ment with Vision. Then, in what is unlike­ly to be a coin­ci­dence, Vision began effect­ing large quan­ti­ties of trades in Freedom’s stock itself.

Former Executive At Vision: “The Takeaway—And I Talked About ‘Dodgy’—Is That Vision’s Operating In Areas That Other Firms Don’t Want To Operate In. And Maybe That Works Out Or Maybe At Some Point The Regulators Finally Say ‘We’ve Had Enough Of This’.”

The Former Executive Described Vision’s Business As A “Little Bit Dangerous” And Confirmed Its “Biggest Customer” Is Freedom

Per its web­site, one of Vision’s key busi­ness­es is clear­ing for “small and medi­um sized brokers/dealers.” In basic terms, that means it pro­vides infra­struc­ture for mar­ket par­tic­i­pants to access the US secu­ri­ties mar­ket and set­tle trades.A for­mer Vision Financial Markets exec­u­tive we spoke to told us that clear­ing was one of Vision’s “key” busi­ness­es as well as rout­ing and exe­cut­ing trades. The for­mer exec­u­tive stat­ed that Vision’s “biggest cus­tomer is an off­shore firm, but it’s a firm that’s got ties back to Russian ownership”.When asked if they meant Freedom, the for­mer exec­u­tive respond­ed: “Yeah, Freedom…Freedom Financial”The for­mer exec­u­tive described in gen­er­al terms the omnibus struc­ture that Vision offers bro­ker­age clients, like Freedom, which allow them to exe­cute and clear trades. He stat­ed clear­ly that Vision would not know who the end clients were.

Yes. There’s only one account. That account could be one cus­tomer. It could be a thou­sand cus­tomers, it could be a mil­lion cus­tomers… So we don’t know the indi­vid­ual customers.”

The for­mer Vision exec­u­tive then went on to reflect on the lack of com­pli­ance at Vision and its inabil­i­ty to prop­er­ly over­see the business:

There was like one and a half peo­ple in com­pli­ance. You know, one [and a half] peo­ple, and I say half because some­body was doing two jobs… for that lev­el of work and the busi­ness they’re doing, they […] didn’t have enough staff to do the job properly”

They felt Vision was will­ing to facil­i­tate busi­ness like Freedom’s that other’s sim­ply weren’t.

The takeaway—and I talked about ‘dodgy’—is that Vision’s oper­at­ing in areas that oth­er firms don’t want to oper­ate in. And maybe that works out or maybe at some point the reg­u­la­tors final­ly say ‘we’ve had enough of this’. So it’s a lit­tle bit dan­ger­ous, let’s put it that way.”

Freedom Reportedly Has Customers Purchase Its Own Stock To Participate In IPOs; A Bizarre Practice That Seems To Contravene FINRA Rules

Beyond ques­tions around high vol­umes of sus­pi­cious trad­ing by tiny bro­ker­ages close to Freedom, part of the stock sup­port may also be explained by an unusu­al and seem­ing­ly ille­gal prac­tice by Freedom.Freedom claims that a key com­pet­i­tive edge for its bro­ker­age has been that its abil­i­ty to secure IPO allo­ca­tions from a secret hedge fund, as explained earlier.For clients who wish to par­tic­i­pate in these IPOs, Freedom report­ed­ly makes them pur­chase Freedom stock first, accord­ing to media reports. [1,2]FINRA Rule 5131 explic­it­ly pro­hibits such quid pro quo allo­ca­tions, stating:

No mem­ber or per­son asso­ci­at­ed with a mem­ber may offer or threat­en to with­hold shares it allo­cates of a new issue as con­sid­er­a­tion or induce­ment for the receipt of com­pen­sa­tion that is exces­sive in rela­tion to the ser­vices pro­vid­ed by the mem­ber.” (Source: FINRA Rulebook)

Note that Freedom has a FINRA reg­is­tered broker/dealer called “Freedom Capital Markets”, which would seem­ing­ly fall sub­ject to those rules.Potential legal­i­ty of the arrange­ment aside, the num­ber of U.S. IPOs has fall­en sharply since 2021, drop­ping from 1,035 in 2021 to 181 in 2022. Ergo, the ben­e­fit to those clients buy­ing Freedom’s stock for IPO access has erod­ed, along with sup­port it has pro­vid­ed to the stock.


Part VI: Regulatory Red Flags

Freedom’s fil­ings claim that part of its busi­ness strat­e­gy is to “Excel in gov­er­nance, trans­paren­cy and con­tin­u­ous invest­ments in reg­u­la­to­ry com­pli­ance” and to “strive[s] to be a trust­ed par­tic­i­pant in the reg­u­la­to­ry frame­work in each juris­dic­tion where we oper­ate”. [Pg. 8]Despite these claims, our research has found a litany of reg­u­la­to­ry sanc­tions and red flags sur­round­ing Freedom’s busi­ness. These issues go beyond the remark­able reg­u­la­to­ry issues already not­ed ear­li­er, such as Freedom’s sanc­tion­ing in Ukraine and the black­list­ing of its key relat­ed par­ty FFIN Belize in Kazakhstan.

Regulatory Red Flag #1: Four Freedom Entities In Kazakhstan Have Accrued 244 Regulatory Penalties, Resulting In 121 Sanctions, For Activities Including Potential Money Laundering And Terrorism Financing

Our search of Kazakhstan’s reg­u­la­to­ry fil­ings revealed that four Freedom enti­ties have an exten­sive list of reg­u­la­to­ry infrac­tions.[39]The four enti­ties have a com­bined 244 total penal­ties, result­ing in 121 sanc­tions or oth­er admin­is­tra­tive penal­ties, total­ing 160,082,585 tenge (U.S. ~$353,000).While the fines are low, the nature of the infrac­tions are revealing.Among oth­er issues, Freedom Finance JSC was penal­ized for issues “con­cern­ing coun­ter­ac­tion to legal­iza­tion (laun­der­ing) of income earned ille­gal­ly, and ter­ror­ism financ­ing in the part of the doc­u­men­tary record­ing and pro­vi­sion of infor­ma­tion on trans­ac­tions sub­ject to finan­cial monitoring”.Freedom Finance JSC also paid fines for “inac­cu­rate report­ing on its activ­i­ty”, and “the sub­mis­sion of unre­li­able, as well as incom­plete reports”.Freedom Finance Insurance paid fines for, among oth­er things, “false finan­cial state­ments and oth­er types of reporting”.Bank Freedom Finance KZ paid fines for “the inef­fec­tive­ness of the risk man­age­ment and inter­nal con­trol sys­tem in the bank”.Finally, Freedom Finance Life was sanc­tioned for, among oth­er things, “com­pli­ance with account­ing and finan­cial report­ing stan­dards”, and, sim­i­lar to Freedom Finance JSC, vio­la­tions relat­ed to laun­der­ing of pro­ceeds from crime and ter­ror­ist financing.

Regulatory Red Flag #2: Freedom Has Failed To Disclose An Ongoing SEC Investigation Since At Least October 2021, According To Reporting By Disclosure Insight

Freedom has been the sub­ject of an undis­closed SEC inves­ti­ga­tion since at least October 26, 2021, accord­ing to a June 2023 report by Disclosure Insight, an inde­pen­dent research firm with more than two decades of expe­ri­ence using Freedom of Information Act (FOIA) requests to deter­mine if com­pa­nies are under active investigation.

(Source: Disclosure Insight June 2023 Report)

Disclosure Insight not­ed that the SEC inves­ti­ga­tion was con­firmed as ongo­ing in December 2022, saying:

It strains cred­i­bil­i­ty to imag­ine [Freedom’s] man­age­ment still thinks its SEC probe is not mate­r­i­al enough to war­rant disclosure.”

Regulatory Red Flag #3: Freedom Disclosed Two Back-to-Back Accounting Restatements And A Material Weakness In Its Internal Controls In 2023

One might think an ongo­ing SEC inves­ti­ga­tion and bar­ring of Freedom’s audit part­ners would prompt the com­pa­ny to focus more close­ly on its inter­nal con­trols. That doesn’t seem to be the case, however.Freedom has restat­ed its finan­cials 4 times on the back of cash flow account­ing dis­crep­an­cies, has recast its annu­al finan­cials in 6 sep­a­rate years and was late in fil­ing on 9 occa­sions, per SEC fil­ings. The company’s recent­ly-filed 2023 10‑K was also months late. [1,2]Just this year alone, Freedom has announced two sep­a­rate account­ing restate­ments relat­ed to mis­clas­si­fi­ca­tion of cash flows and earn­ings. [12]In addi­tion, Freedom’s most recent annu­al report dis­closed that its CEO and CFO have deter­mined its dis­clo­sure con­trols and pro­ce­dures were not effective:

Based upon that eval­u­a­tion, our prin­ci­pal exec­u­tive offi­cer and prin­ci­pal finan­cial offi­cer con­clud­ed that, as of March 31, 2023, due to the mate­r­i­al weak­ness­es in our inter­nal con­trol over finan­cial report­ing described below, our dis­clo­sure con­trols and pro­ce­dures were not effec­tive.” [Pg. 164]

Regulatory Red Flag #4: In June 2023, The SEC Brought Major Charges Against Crypto Exchange Binance, Alleging An “Extensive Web Of Deception”

16 Days Later, Freedom’s Bank Signed A Deal With Binance, Announcing The Launch Of A Kazakh Digital Asset Platform

On June 5th, the SEC announced a major enforce­ment action against Binance, the largest cryp­to exchange in world. In its release, the SEC alleged that Binance and its founder brazen­ly oper­at­ed an “exten­sive web of decep­tion, con­flicts of inter­est, lack of dis­clo­sure, and cal­cu­lat­ed eva­sion of the law.” 

(Source: NYTimes)

The SEC’s 136 page com­plaint includes damn­ing evi­dence, show­ing, among oth­er things, Binance’s CCO appar­ent­ly admit­ting to oper­at­ing an unli­censed secu­ri­ties exchange in the USA.

(Source: SEC Complaint [Pg. 29])

The com­plaint goes on to allege that Binance funds were com­min­gled with out­side enti­ties tied to its founder, that an enti­ty con­trolled by Binance’s founder wash trad­ed on the plat­form, and that Binance mis­led investors. [Pg. 4] [Pg. 47] [Pg. 58]Media out­lets spec­u­lat­ed that the sever­i­ty of the SEC charges could lead to fol­low-on crim­i­nal charges.When an enter­prise is accused by the SEC of run­ning an exten­sive web of decep­tion and fraud, oth­er com­pa­nies reg­u­lat­ed by the same author­i­ty might choose to avoid the enter­prise at all costs.Not so with Freedom. On June 21st, 16 days after the SEC filed charges, the founder of Binance tweet­ed an announce­ment about the launch of a dig­i­tal asset plat­form in Kazakhstan, specif­i­cal­ly high­light­ing new “local bank­ing sup­port” from Freedom Finance Bank.

(Source: Binance blog)

Conclusion: A Long List Of The Worst Elements of Finance

All told, Freedom has exhib­it­ed a star­tling array of red flags relat­ing to vir­tu­al­ly every cat­e­go­ry of finan­cial malfea­sance wor­thy of investigation.

[1] Mainly Kazakhstan, Kyrgyzstan, Uzbekistan and Ukraine.

[2] Based on 42.4M com­mon shares held on last Form 4, and 59.65M com­mon shares out­stand­ing report­ed as of March 31st 2023, per its annu­al report. 

[Pg.94][3] Turlov was a cit­i­zen of Russia and St. Kitts until mid-2022, when he announced – just months into the Russia-Ukraine war – he was tran­si­tion­ing to Kazakhstan res­i­den­cy. St. Kitts was described as the world’s “most secre­tive off­shore [tax] haven” in a 2018 Guardian report.

[4] Maxim was ranked out­side the top 20 per Bloomberg’s League Tables in 2022. The major­i­ty of its deals were less than $15 mil­lion in size in 2022.

[5] We cal­cu­lat­ed Freedom’s com­mis­sion and fee income specif­i­cal­ly from FFIN Belize and divid­ed by total rev­enue.[6] Search Belize com­pa­ny and cor­po­rate affairs reg­istry using search term “Freedom Securities Trading”

[7]Okhabank was con­trolled by Rosneft and Rosneft-owned Russian Regional Development BankIgor Sechin is CEO of Rosneft.

[8]Igor SechinRosneft and Russian Regional Development Bank were specif­i­cal­ly sanc­tioned under the terms of U.S. exec­u­tive orders orig­i­nal­ly issued in March 2014. Sechin was added to the sanc­tions list on April 28, 2014. Rosneft was hit with sanc­tions two-and-a-half months lat­er on July 16, 2014. That July 2014 direc­tive also includ­ed its sub­sidiary Russian Regional Development Bank. OFAC clar­i­fied that inter­pre­ta­tion and specif­i­cal­ly iden­ti­fied the Russian Regional Development Bank in lat­er updates.

[9] The deal to pur­chase Okhabank from sanc­tioned Russian enti­ties con­sum­mat­ed in full in April 2016, when Freedom Holding, then a U.S.-listed pub­lic com­pa­ny, acquired the remain­ing 90.72% of shares and changed Okhabank’s name to Freedom Finance Bank.

[10]Executive Order 13662 issued on March 20, 2014 states “Sec. 4. The pro­hi­bi­tions in sec­tion 1 of this order include but are not lim­it­ed to: (a) the mak­ing of any con­tri­bu­tion or pro­vi­sion of funds, goods, or ser­vices by, to, or for the ben­e­fit of any per­son whose prop­er­ty and inter­ests in prop­er­ty are blocked pur­suant to this order;

[11] That same month, Turlov renounced his Russian pass­port and took on cit­i­zen­ship of Kazakhstan – strate­gic move allow­ing him to con­tin­ue to trav­el freely after the EU imposed a ban on flights from Russia in February 2022 and a num­ber of EU nations had imposed entry bans on Russians by September 2022.

[12] Russia´s cen­tral bank – a key sanc­tions tar­get of the U.S. Treasury – approved the deal in February 2023.

[13] Readers can repli­cate this search by nav­i­gat­ing to–44481, search­ing for Appendix 1 (Додаток 1), then search­ing for “Турлов Тімур Русланович”(Timur Turlov Ruslanovich)

[14] In July 2023, the chan­nel had over 8,200 mem­bers (a siz­able num­ber when com­pared to Freedom’s dis­closed “active accounts” of 56,000 as of December 2022). [Pg. 72]. It is unclear whether this is an offi­cial or unof­fi­cial chan­nel of Freedom.

[15] The US move to sanc­tion Tinkoff came after con­trol­ling inter­est in the bank was tak­en by Vladimir Potanin, one of the major oli­garchs in “President Vladimir Putin’s inner cir­cle.”

[16] Subsequent media reports claim Freedom Bank Kazakhstan will only open accounts for Russians in person.

[17] Freedom had made ad-hoc relat­ed par­ty dis­clo­sures dat­ing back to July 2018 relat­ing to FFIN Belize. For exam­ple, it paid mod­est pri­vate place­ment fees to FFIN Brokerage and made loans to it, per a 2018 Schedule 144a disclosure.

[Pg. 30][18] WSRP was even­tu­al­ly replaced by Deloitte LLP in Kazakhstan, on October 13, 2022, accord­ing to SEC filings.

[19] In July 2022, WSRP, who had been Freedom’s audi­tor since 2016, declined to stand for reap­point­ment with­out spec­i­fy­ing a reason.

[20] Several proxy state­ments (from 2018–2020) made pass­ing ref­er­ence to the enti­ty, but sug­gest­ed it was respon­si­ble only for small loans and fees. 

[1,2,3][21] Per Freedom’s annu­al reports, FFIN Belize fee and com­mis­sion income for 2020, and 2023 was $48.4 mil­lion and $196.3 mil­lion respec­tive­ly, an increase of 306% since 2020.

[Pg. 125, Pg. 95][22] For exam­ple, Charles Schwab ded­i­cates a whole page of its 2022 annu­al report to pre­cise details of what clients own and the growth in client accounts and assets.

 [Pg. 18] Plus 500 has sep­a­rate line items for cus­tomer deposits and seg­re­gat­ed client funds, per its 2022 annu­al report. 

[Pg. 127] Interactive Brokers has many dif­fer­ent client line items and dis­clo­sures, includ­ing cus­tomer equi­ty, cus­tomer mar­gin assets, seg­re­gat­ed cash in its 2022 annu­al report. 

[Pgs. 60, 86][23] The notion that FFIN Belize is issu­ing retail clients with deriv­a­tives based on US IPO allo­ca­tions is cor­rob­o­rat­ed by a lead­ing finan­cial infor­ma­tion web­site in Russia, Per Crunchbase, is the no.1 bank infor­ma­tion web­site, accord­ing to Russia ratings.

[24] FRHC´s lat­est 10‑K fil­ing esti­mates 40% of FFIN Belize clients are Russian. [Pg. 36] It does not detail the nation­al­i­ties of the remain­ing 60%.

[25] Another for­mer employ­ee also made their sus­pi­cions clear that there might not be real IPO allo­ca­tions: “But my sus­pi­cion is that there is no actu­al IPO. Like there is no actu­al […] stock allo­ca­tion, but you have some kind of deriv­a­tives. I don’t think that it’s a real­ly actu­al allocation[…]I think that this is some kind of derivatives”

[26] Net gain on trad­ing secu­ri­ties is dis­closed in the annu­al reports. 

[Pg. 25Pg. 29Pg. 19Pg. 95][27] By appoint­ment is a spe­cif­ic trad­ing term describ­ing a secu­ri­ty that has lit­tle liq­uid­i­ty on nor­mal exchanges, requir­ing par­tic­i­pants to search for liq­uid­i­ty on a block basis, usu­al­ly with the help of an insti­tu­tion­al broker.

[28] The full list of CUSIPs: BY6053478, BZ1147694, ZN2011270, ZN5458916, BZ4516036, ZL1827845, ZL4704645, ZJ8532765, BZ2785724, ZN2011288, ZN6509733, ZN7481940, BP2326828, BZ4185659, ZN7490800, BP2338849, BZ2786508, ZK0195766, ZJ8538242, ZN6514733, BP2335696, ZM5768696, BP2326786, ZN6519526, ZM5769991, BP2333519, BP2298167, BP2296336

[29] Per Bloomberg his­tor­i­cal vol­ume data as at 10 August 2023[30] According to Fitch, the Kazakh Sustainability Fund had total debt of KZT1,012.5 bil­lion, trans­lat­ed to around U.S. $2.2 bil­lion. This com­pares to Freedom’s dis­closed hold­ings as of December of U.S. $835 million.

[31] Accurate yield pric­ing was not avail­able for 6 bond issues. We used Bloomberg field: “YLD_YTM_MID” as at 10 August 2023

[32] The fol­low­ing bonds with matu­ri­ties between 2025 and 2032 had between 12.07–13.01% mid yield to matu­ri­ty: BP2298167, BP2296336, BP2335696, BP2333519, BP2326786, BP2338849, per Bloomberg. BP2338849 yield­ed 12.07% as at 10 August 2023

[33] It is not exact­ly clear if Freedom has clas­si­fied the Kazakh Sustainability Fund as sov­er­eign or cor­po­rate debt. It trades on KASE an indi­vid­ual issuer yet is backed by the government.

[34] From the web­site, nav­i­gate to the mar­ket mark­er tab and see issues KFUSb49 to KFUSb18.

[35] ECN stands for Electronic Communication Network, mean­ing the exchange

[36] We used the func­tion BAS (bro­ker­age activ­i­ty sum­ma­ry) which col­lates data from the Nasdaq Exchange.

[37]  In June 2022, the SEC announced an affirmed judg­ment result­ing in $7.5 mil­lion fines for Avalon.

[38] Vision Financial Markets LLC is IDd as VSIN in Bloomberg’s ECN data

[39] To repli­cate this search, nav­i­gate to this link and search for the fol­low­ing Freedom enti­ties: “Bank Freedom Finance Kazakhstan, JSC”, “Freedom Finance, JSC”, “Insurance Company Freedom Finance Insurance, JSC”, “Life Insurance Company Freedom Finance Life, JSC”. A fifth enti­ty, Investment Company Freedom Finance, LLC, turned up no reg­u­la­to­ry infractions.