16.08.2023 19:22

Freedom Holding Corp. responds to attacks by Hindenburg Research

On August 15th Hindenburg Research published a material on Freedom Holding Corp. (NASDAQ: FRHC), claiming the company violates market rules and uses unfair practices. Despite Hindenburg's abrupt statements, the markets have not shown any significant reaction with only a moderate decline in FRHC’s stock price. The company’s CEO, Timur Turlov has come forward with a detailed interview on the recent Hindenburg report.

How do you respond to the accusations made in the Hindenburg report?

Statements made in the report are incorrect, based on misinterpretation of open-source information, derived from rumors, unreliable sources or outright false. First thing to consider is that the company has been audited by the largest big-4 auditor, Deloitte. Throughout the process Deloitte has received similar negative statements against the audited company, which is why the company was scrutinized, its businesses and operations additionally researched, resulting in the FRHC's annual report for the 2022 fiscal year ended March 31, 2023 being released 2 months later. Provided even one of the accusations that made up that report was true, it would certainly have been reflected in the FRHC’s K-10 report. However, the audit result is clear, with no indications of any violations or misdoings. The report is public, available to everyone on the U.S. SEC website.
Hindenburg report says, referring to a former employee of Freedom, that you are still in control of the company's assets in Russia, although officially the company has sold all of its assets and businesses in that country. 
100% of the Russian assets were sold to the local management. We officially announced our complete withdrawal from Russia in 2022. The deal was finalized and approved by the regulatory bodies in February 2023. Neither I nor any other shareholders or FRHC’s top management control any of the company’s former assets in Russia. 
The anonymous person Hindenburg most likely refers to as its source worked for the company for a very short time, did not demonstrate enough expertise to continue working with us and accumulated a lot of resentment towards our company. While I understand that certain individuals may have negative experience with our company due to a variety of personal reasons and circumstances, the individual cited in the report is driven by deep personal negative sentiments towards the company and its leadership, and even lost in court on all complaints he had towards FRHC. 

The company’s and my personal priority have always been our people, their well-being and professional development. That is demonstrated by a number of HR awards and certifications, like the Great Place to Work certification held by the company’s European subsidiary. Our research shows that 90% of employees are content with the work environment, development opportunities and transparency of communications.

Nevertheless, you are under Ukrainian sanctions, and your company is blamed by Hindenburg for violating the sanction regime. 
I was included in the sanctions list by the Ukrainian authorities, along with many financial business leaders operating in the Russian Federation (i.e. some top managers of American banks in Moscow were also included in this list). I am convinced that my inclusion in that list was a technical error since I terminated my Russian citizenship in 2022 and the company has completely withdrawn from Russia. 
The company lost both Russian and Ukrainian markets and transferred some of its clients to be served in Kazakhstan. We are open about this fact, which is demonstrated across numerous financial reports. The company adheres to the highest standards of sanctions compliance, and all interactions with individuals put on the SDN list occur in accordance with the sanction’s restrictions.
One point mentioned in the Hindenburg report states that the company bought a bank from Igor Sechin, the head of Rosneft, who has been put on the U.S. sanctions list. That is correct, however, the deal was closed in 2015, and at the time this bank was a regular financial institution with transparent documentation, a registered but not operating entity.
As for the Russian Alfa Bank clients mentioned by Hindenburg, we followed the sanctions requirements and transferred only those clients with no issues related to the OFAC (U.S. Treasury Department’s Office of Foreign Assets Control). Essentially, we as a company did exactly what the U.S. Treasury Department expected the company to do. It’s important to understand that the sanctions regime does not limit or prohibit all activities to the entirety of the Russian clients. There are detailed requirements and detailed restrictions, which the company strictly adheres to.
Hindenburg said that your asset in Belize – Freedom Securities Trading Inc. (FST Belize) was used to operate with individuals on sanctions lists.
First of all, FST Belize adheres to the same sanction’s compliance as other companies within Freedom Holding Corp. Secondly, the U.S. legislation clearly reflects the principle of connection with American citizens, companies, and funds (US nexus), according to which the sanctions regimes are applied. No sanctions are applied to the case with no involvement of American representation (i.e. if a non-U.S. company transfers money to a non-U.S. person in non U.S.-currency, the sanctions regime is not applied).
What about «false information» about income of FST Belize?
Any statements on “fake revenue” do not hold since the company’s auditor conducted a thorough complete research of all clients, operations and income reflected in the company’s statements. What was shown as receivables in the FST Belize 2020 report was account balances with the upstream broker (at the time, it was Freedom Europe). When the company worked on the most recent report of the holding audited by Deloitte, sufficient positive equity and an adequate balance sheet structure was verified.
How often has FST Belize issued financial reports since 2020?
This company must submit reports to the regulatory bodies annually, with no obligation to publish them. However, almost all FST Belize’s operations were within the parameters of the holding. In this regard, Hindenburg’s claim that the company exposes clients’ assets to extreme risk is incorrect. The procedures for client’s funds and securities are defined by the company’s regulations and correspond with the standard practices of any brokers providing margin trading services in Europe and the U.S.
The very case of the FST Belize reports raises suspicions around the holding’s reporting.
After a thorough and complete audit of the holding conducted by Deloitte, there is nothing that indicates that the company’s reporting is inappropriate or abnormal in any way. We resubmitted a number of forms with the changes primarily related to the classification of certain statement items with no change to the factual financial results.

This is not the first time your holding has been accused of manipulating prices for its own securities. 
Allegations of manipulation of share prices may sound logical until the FRHC business researcher discovers that a significant part of our shareholders are our clients. This is the reason for such a concentration of trading in our stocks from those brokers who serve our firm. In fact, they simply serve the transactions of our clients.
Hindenburg Research said that the FRHC has invested almost $835 million in securities of the Kazakhstan Sustainability Fund (KFU). Can these investments pose any threat to the company’s stability?
Both the company’s report and the report of Deloitte showed that the KFU securities (which is the subsidiary of the National Bank of Kazakhstan), are highly liquid instruments secured by the Kazakhstani regulator. With the help of such securities, a business can receive funds from different sources, including the National Bank, on an ongoing basis. Thanks to guarantees from the National Bank, these securities, which are equal to government securities, are highly reliable and available for purchase without any restrictions on quantity. 
According to the material, FRHC and its subsidiaries often deal with fines. 
That’s incorrect. While the Hindenburg report says the company had a total of 244 fines, it is important to understand that regulatory approach in Kazakhstan differs significantly from that of European or U.S. regulatory bodies. In fact, the number in question refers not only to fines, but to all formal notices or instructions which may or may not come in the form of fines. A major part of these 244 notices concerns minor technical errors in reporting forms and does not constitute fines. We are one of the largest financial enterprises in the country undergoing numerous inspections, sometimes resulting in such notices, which are disclosed publicly and do not represent any major violations.

Hindenburg said that the holding refused to disclose the details of regulatory requests. According to the reporting, there is little information on this subject indeed.
We provide all materials requested by regulators, however, the company has not received any accusations from any of its regulators. Otherwise, it would have been disclosed in the company’s financial statements. Moreover, there are requests from regulators that cannot be disclosed, except when charges are brought. Also, requests from regulators often appear as a reaction to such «analytics» (i.e. Hindenburg report).
Do you expect Hindenburg research to have any consequences on the FRHC business?
In any strange situation, some investors prefer to sell stocks, so the market value of the company’s shares has declined a little bit. I believe that this report will have little effect on our business. We have the opportunity to communicate with our clients, among whom many are the shareholders of the company. 

We remain focused on our business. FRHC remains committed to serving more clients and demonstrating further growth across key business indicators.

Interview from the kursiv.kz