Problems at Freedom Holding Corp (FRHC)
NASDAQ Should Halt Trading in Freedom Holding Corp (FRHC)
Freedom Holding Corp (NASDAQ: FRHC — $3.54 billion) operates retail stock brokerages, banks, and margin lending services in Russia and Eastern Europe. Headquartered in Almaty, Kazakhstan, Freedom Holding Corp employs over 1,000 people in Russia, owns a stake in the Saint Petersburg Stock Exchange, has the majority of its brokerage branches in Russia, and has ties to Russian government officials and banks sanctioned for money laundering. Freedom Holdings is also surrounded by other irregularities. For example, the company generates most of its activity in a related-party Belize brokerage and Freedom pushes customers to buy its own stock. Although Freedom Holding’s Russia listing is halted, the company continues to benefit from accessing U.S. capital markets with an active NASDAQ listing. That may change.
Freedom Holding Corp was formed in a 2015 merger with BMB Munai, an OTC-listed Kazakh oil exploration company, and in October 2019 the company uplisted to the NASDAQ. In the last five years, Freedom Holding Corp stock has risen over 37,000% and the company has acquired numerous brokerages, insurance companies, and asset management firms — many from Freedom’s Founder, CEO, Chairman, and controlling shareholder, Timur Turlov.
Below is a now-deleted February 2020 slide showing Freedom’s footprint:
Mr. Turlov, 34-years-old, owns 72% of Freedom Holding Corp, graduated from Russia State Technic University in 2009, and was previously a contributor to Forbes Russia. Quirks abound. For example, in its Kazakhstan office, Freedom Holding Corp has “a life-size cardboard cut out of U.S. President Donald Trump for visitors to take selfies with.”
Freedom Holding Corp also routes much of its brokerage trades through FFIN Brokerage in Belize, a related-party entity controlled by Mr. Turlov.
In its 2021 10-K Freedom Holding Corp warns investors:
“Significant reliance on a related party brokerage firm poses risks associated with a concentrated source of revenue and evolving market regulations might increase risks for conflicts of interest, direct competition, and reduce commission revenue from that brokerage… FFIN Brokerage has been able to provide easier access to the U.S. securities markets to investors in Russia.”
In August 2021, Roddy Boyd at The Foundation for Financial Journalism published an article on Freedom Holding Corp and its ties to FFIN, writing,
“Last year more than 56 percent of Freedom Holding’s revenue came from FFIN commission payments, and in 2019 they represented over 65 percent. What Freedom Holding does to earn the commissions is not readily apparent, however. Yet the two companies are so intertwined – Freedom Holding’s senior managers use FFIN email accounts – it’s not clear the two companies are separate in any real sense.”
The Foundation of Financial Journalism also found that FFIN had relationships “with companies of questionable repute” and highlighted FFIN’s relationship with QBF LLC and CityLife, two Moscow-based companies:
“Both QBF and CityLife have attracted the scrutiny of the Russian government: The Ministry of Internal Affairs raided QBF on May 31 and arrested two of its principals for purportedly conducting a Ponzi scheme. And on June 1, the Central Bank of Russia’s Unfair Trade Practices unit added CityLife to a list of companies with identified signs of illegal activity for allegedly showing signs of running a pyramid scheme. How does FFIN fit into all this? According to a translation of a Russian language press account of the Interior Ministry’s QBF raid, FFIN was one of several banks and brokerages the asset manager’s executives were said to have used to move investor cash out of Russia.”
In May 2021, a Russian newspaper also alleged that Freedom Holding Corp helped launder money for Pavel Livinsky, the chair of Rosseti, a large Russian power company. Mr. Livinsky previously reported directly to Vladimir Putin.
Today, FFIN’s corporate website lists “Baltikums Bank AS” as its Beneficiary Bank. That bank has since changed its name to “BlueOrange” and was fined by Latvia’s banking watchdog in 2018 “for violating anti-money laundering and terrorism financing rules… and [failure] to ensure that suspicious transactions were identified and reported.”
Despite numerous ties to Russia and alleged Russian money laundering, Freedom Holding Corp continues to trade on the NASDAQ under the ticker FRHC.
In response to Russia’s invasion of Ukraine, NASDAQ issued halts on numerous Russian securities including the VanEck Russia ETF (RSX), Russian search engine Yandex (YNDX), and Cyprus-based Nexters (GDEV), a video game developer with a presence in Russia.
In a media comment about the halts, NASDAQ referenced rules designed to ensure material information is “fairly and adequately disseminated to the investing public.” Freedom Holding Corp has issued only one 8-K in the last month and emphasized its “culture of full regulatory compliance remains the cornerstone of our corporate governance in each legal jurisdiction where we operate.”
Because Freedom Holding Corp does not appear to comply with NASDAQ’s rule to ensure material information is “fairly and adequately disseminated to the investing public,” The Bear Cave is calling on NASDAQ to enforce its trading halt rules on Freedom Holding Corp.
Investors may have more pressing concerns.