Hindenburg Research targets $4.6 billion Kazakh brokerage for allegedly helping Russian oligarchs evade sanctions

Hindenburg Research, the distinguished brief vendor that is guess in opposition to Jack Dorsey’s Block, Carl Icahn and electrical car startup Nikola, is now taking over a $4.6 billion on-line brokerage based mostly in Kazakhstan.

Freedom Holding Corp. was based in Moscow in 2008, earlier than later transferring to Kazakhstan, and listed on the Nasdaq in 2019. After Russia invaded Ukraine early final yr, U.S. sanctions basically severed ties between American and Russian banks and firms. Freedom offered off its Russian business.

But based on a report from Hindenburg on Tuesday, these ties stay tight.

“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,” the agency wrote.

Shares of Freedom Holding fell about 3.3% on Tuesday. Hindenburg’s report got here a day after Freedom warned it was notified by Nasdaq of noncompliance for failing to submit its quarterly earnings report for the interval ended June 30.

In Freedom Holding’s newest annual report, the corporate mentioned income for the yr ended March 31 was $795.7 million, up nicely over 100% from two years earlier.

At the guts of the corporate’s development, Hindenburg alleged, was sanctions evasion, together with from the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC. Hindenburg highlighted Freedom’s acknowledgment to the Securities and Exchange Commission 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.”

According to Hindenburg, the issues go a lot deeper.

The agency mentioned it discovered by way of interviews with a number of former staff that consumer cash ran from Freedom’s places of work in Russia and Kazakhstan by way of a “Belizean entity privately owned by Freedom’s CEO.” SEC filings present that entity represented 60% of Freedom’s charge and fee revenue for the yr ended March 31.

Freedom CEO Timur Turlov is among the wealthiest males in Kazakhstan, regardless of being sanctioned by Ukraine for his monetary ties to Russia.

One former senior govt alleged to Hindenburg that Russian cash laundering was rampant. Regarding compliance requirements, Hindenburg mentioned the ex-employee described them as “literally nothing.”

“Just bring your money. There’s no source of income, source of funds. There’s no KYC. Nothing,” the agency mentioned, quoting the previous worker. “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.”

The Belize entity, FFIN Belize, was established simply 4 months after the U.S. sanctioned Russia in 2014. Those sanctions, prompted by Russia’s invasion of Crimea, created an issue for Freedom’s business, Hindenburg alleged.

Freedom’s SEC filings from 2014 say FFIN Belize was designed to “provide easier access to the U.S. securities markets than a Russian or Kazakhstan company could provide.”

A Freedom spokesperson, working for an out of doors agency within the U.S., instructed CNBC that Hindenburg’s allegations are “without merit.”

“Freedom Holding and its subsidiaries continue to provide all required disclosures to regulators and investors, who can review our recently filed form 10-K and … audited financial statements on our website,” the consultant mentioned.

Freedom shares have been on a tear the previous couple of years, climbing greater than eightfold for the reason that finish of 2018, largely undeterred by international conflicts. The firm reported web revenue of $205.6 million in fiscal 2023, with about 79% coming from operations in Kazakhstan.

Hindenburg, based in 2018, is thought for taking brief positions and publishing detailed reviews explaining the logic behind its bets. The agency has wagered in opposition to Block, previously Square; Icahn Enterprises; Gautam Adani’s Adani Group; and Trevor Milton’s Nikola.

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