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Investigations by DOJ and SEC Revealed for Kazakh Fintech Freedom Holding

Lanon Wee

Under examination by the Justice Department and U.S. regulators, Freedom Holding Corp., the Nasdaq-listed Kazakh financial firm that has been recently attacked by short sellers, is now facing increased scrutiny. The company, with a market capitalization of $5 billion and led by 35-year-old billionaire CEO Timur Turlov, formerly a Russian citizen, experienced a drop in its stock price after an unfavourable report was issued by short sellers in August, but has since rebounded by 22%. Federal authorities are conducting investigations related to Freedom Holding Corp., a Nasdaq-listed Kazakh financial firm who has been the focus of notable short sellers, concerning compliance matters, internal stock movements, and a foreign affiliate tied to those subjected to sanctions, consistent with facts established by CNBC. Documents seen by CNBC and information from sources suggest that the SEC's Boston office has explored Freedom for an extended period, and the U.S. Attorney's Office for Massachusetts is initiating preliminary inquiries. In spite of this, no formal charges have been issued or any wrongdoings declared. The probes by the SEC and DOJ center around the firm's internal regulations and overseas functions, as well as assertions made by Freedom's CEO Timur Turlov, who is 35 years old and was previously a Russian citizen, that the company provides access to new U.S. IPOs for its largely Russian clientele. The SEC began to focus on probable securities infringements at Freedom from 2022, spurred by reports from Hindenburg Research and Citron Research. Freedom is headquartered in Almaty, Kazakhstan and has a market cap of $5 billion. The company's website describes it as a provider of brokerage and investment banking services to Central Asia and Eastern Europe. According to filings, Freedom has an office in the Trump Building in New York's Financial District, and states that it employs 3,700 people and has 370,000 brokerage customers. Turlov established Freedom in 2010, and by 2013 had grown the venture from Moscow to the EU. In February, the firm disclosed its parting with its Russian operations, just shy of one year after Russia started its offensive in Ukraine. Turlov, a former holder of citizenship from Saint Kitts and Nevis in the Caribbean together with Russia, holds 71% of Freedom stocks, yielding approximately $3.6 billion. He was officially made a citizen of Kazakhstan in 2022, being compelled to give up both his Saint Kitts and his Russian nationality, as Kazakhstan does not recognize double citizenship. The Hindenburg report claimed that Freedom used a Belizean holding company, owned by Turlov, to assist sanctioned individuals in gaining entrance to the U.S. financial system. Freedom admitted that their Belizean entity, FST Belize, provides services to sanctioned individuals, but alleges that these individuals do not have access to U.S., U.K. or EU financial systems. FST Belize holds Kazakh licenses, and were added to a list of companies with supposed "illegal activity" in 2021. Freedom stated that it "fully complies" with local laws and regulations and that its stock, which trades on the Nasdaq, has been subject to scrutiny. Following Hindenburg's report, Freedom's shares dropped 8% which quickly rebounded. Since then, various law firms have announced an investigation into potential securities law violations. Citron compared Freedom to Sam Bankman-Fried's Alameda Research, and argued that Turlov's Russian connections warranted an SEC investigation. Freedom has dealt with previous oversight issues. In July, the firm's European branch was fined 50,000 euros by the Cypriot securities regulator due to deficiencies in its anti-money laundering and anti-terrorism financing policies. Moreover, a year ago, WSRP, Freedom's former U.S. auditor, was required to resign by the American audit regulator after it learned that three of the auditors from WSRP had not followed the right standard of review. For not evaluating the genuine nature of Freedom's association with its Belize entity, those auditors were convicted and suspended, and they are now able to reapply for reinstatement. Consequently, WSRP abandoned its role as Freedom's auditor. Deloitte Kazakhstan took over and helped Freedom restate the misstatements that the former auditor had made to the SEC, and the firm successfully re-met all necessary stock exchange regulations, as shown in the filings. Deloitte's Kazakh office is located a few blocks away from Freedom's headquarters, in the major city and economic hub of Kazakhstan. Furthermore, records from the Public Company Accounting Oversight Board suggest that Freedom is the only U.S. company listed with the SEC that is audited by Deloitte Kazakhstan. Turlov responded to Hindenburg's report by noting that Freedom had been audited by Deloitte, one of the largest Big 4 auditors. Deloitte and Roman Sattarov, the Deloitte partner in charge of Freedom's audit, did not respond to CNBC's request for comment. Despite the U.S. probes, Turlov recently travelled to New York to meet with partners and regulators. A spokesperson for Turlov denied that he was visiting regulators. During an interview published Thursday in Kazakhstan, Turlov did not specify which U.S. regulators had approached Freedom, but attributed it to Hindenburg's report, which he called "misinformation."

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