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Writer's pictureMarcus Nikos
Jan 47 min read

Freedom Holdings- Imagine if FTX violated Russian Sanctions

Liquid Research LLc \


Freedom Holdings- Imagine if FTX violated Russian Sanctions

$FRHC auditors recently fined and banned from PCAOB for not doing proper diligence on this obvious scheme.


Forbes 30 under 30 curse goes International.


Freedom Holdings has faced criticism for their questionable business practices, including their IPO model, Potemkin board of directors, and lack of oversight. Despite this, the stock of Freedom Holdings remains at an elevated level due to CEO Timur Turlov's concentration of ownership and ability to manipulate the price through multiple related party trading arms and hedge funds, similar to what was seen with FTX/Alameda Research.


While there are concerns about Freedom Holding's declining KPI and valuation compared to established Kazakh-based financial institutions, the most pressing issue is the potential violation of sanctions and related party transactions resembling FTX/Alameda.


We will not rehash old Bloomberg investigative pieces that question the business practices of FRHC


Let's start six months ago. On October 19, 2022, Mr. Turlov, along with the senior management of Freedom Finance, was put on the war sanctions list by Ukraine for financial support of the Russian Federation. And this is where the web of lies begins

Without releasing an 8k, the company put out a press release instead, mischaracterizing the situation.

"We were stunned to learn today that FREEDOM FINANCE UKRAINE LLC was included on the National Security and Defense Council of Ukraine sanctions list, which included more than 2,500 companies and individuals, and was released on October 19, 2022. We believe that the inclusion of the company on this list is erroneous."

Turlov was quick to declare to the media that his sanction entry was just a "technical error" or imposed "mechanically". However, given the potential seriousness of the situation, there may be a need for an SEC investigation. Turlov is not to be trusted.


As we found out within weeks, this was neither erroneous, technical, or mechanical. As reported.

“The list of restrictions imposed by Ukraine for both individuals and legal entities includes 15 items, including the blocking of assets, restrictions on trade operations, a ban on the withdrawal of capital from Ukraine, a suspension of the fulfillment of economic and financial obligations, etc.”





The National Commission on Securities and the Stock Market (NKTSBFR), which regulates the Ukrainian stock market, suspended the licenses of Freedom Finance Ukraine on November 9, 2022, following the decisions of the National Security and Defense Council. Not only was the firm and its directors sanctioned, but their brokerage license was also suspended for a period of five years, and its assets were frozen by the Ukrainian authorities. Bloomberg immediately contacted the Ukrainian Central Bank regarding Freedom's future in doing business in Ukraine.


"That's bound to prove challenging given that the nation has sanctioned him and his local Freedom branch because of his ties to Russia. The Ukrainian Central Bank is willing to do business with foreigners, but only with those with an "impeccable" reputation - not sanctioned entities," its press office said in a text message.



What does Ukraine know about Freedom that has not yet been absorbed in the markets in the United States? What are his “Ties to Russia”


Answer – FFIN is the Belize/Russian version of Alameda Research.

While Freedom Holdings appears to have sold their Russian operation, Freedom Finance, their version of Alameda continues to operate under the sole ownership of Timur Turlov.

Investors are introduced to this shadowy party with the following entry:

“In July 2014, prior to our acquisition from him of FFIN Securities, Freedom EU, and Freedom RU and Freedom KZ, Timur Turlov established FFIN Brokerage Services, Inc., a corporation registered in and licensed as a broker-dealer in Belize ("FFIN Brokerage") to service the investment needs of customers desiring broader investment options in international securities markets. FFIN Brokerage is owned personally by Timur Turlov and is not part of our group of companies.”


The purpose of FFIN is as described in SEC filings, “… FFIN Brokerage has been able to provide easier access to the U.S. securities markets to investors in Russia.”


“We expect FFIN Brokerage will continue to process brokerage transactions for its customers through us, so long as such business is not prohibited by U.S., UK, or EU sanctions or prohibited by Russian countersanctions. To date, the government of Belize has not issued any economic sanctions against Russia or any other jurisdiction.”

Turlov Continues to Circumvent Sanctions…Back to Lack of Trust

As Freedom divested their Russian unit, Turlov stated, "After Russia's full-scale invasion of Ukraine, we decided that it was better for our company to leave the Russian market. I also renounced my Russian citizenship," said Timur Turlov, CEO of Freedom Holding Corp.”

"Today we do not see the possibility of keeping the Russian business inside the U.S. holding due to the ban on any investment in Russia for U.S. residents, as well as due to a large number of restrictions for deals with non-friendly non-residents."

YET, he continues to be the sole owner and operator of FFIN Brokerage Firm, which derives most of its trading from Russia.

Make no mistake, FFIN is clearly set up for Russia as its homepage only has two languages: English and Russian. The first example of Brokerage Services is "Support in Russian.

THIS IS THE KEY TO THE WHOLE FREEDOM INVESTIGATION THESIS

Freedom Holdings generates 85% of its revenues and 95% of their margin lending from FFIN. FFIN generates the majority of its revenue from Russia. FFIN is a controlled entity by Freedom's CEO, who owns 75% of Freedom's stock and therefore has an overwhelming incentive to use FFIN as an illegal piggy bank to funnel funds from Russia into FRHC to manipulate its earnings or stock.


Auditors Barred For this Exact Issue


Freedom's auditors were recently fined and barred by the PCAOB for their oversight of the relationship between FRHC and FFIN. The unsavory relationship between these two entities has come to light, and in December of 2022, the PCAOB fined and barred the auditors of FRHC for not questioning the relationship between these entities.


Below is a sampling of some of the comments of the oversite boar

PCAOB Release No. 105-2022-038 December 20, 2023


“During the Audits, the Engagement Partners failed to inquire about the business purpose of these related party transactions. For example, they failed to inquire why the Belize Affiliate’s retail customers could not have gone directly to Freedom with their trade orders, as opposed to placing their orders with the Belize Affiliate then passing those orders to Freedom.”


“Likewise, neither of the Engagement Partners learned why Freedom’s CEO set up two separate entities—the Belize Affiliate and Freedom—and then funneled retail trade orders through the non-public, non-audited entity (the Belize Affiliate) on their way to processing by Freedom.”


“Neither Reams nor Keyes took sufficient steps to understand the transactions between the Belize Affiliate and its retail customers.” x


“Reams and Keyes identified and knew there were risks of material misstatement with respect to revenues and margin loans receivable related to transactions with the Belize Affiliate.” the Belize Affiliate and Freedom were related parties, both of which were under control of the Freedom CEO; and (c) Reams and Keyes did not have access to the records and personnel of the Belize Affiliate needed to evaluate material portions of Freedom’s financial statements.


“Evaluate whether a related party was a variable interest entity that, potentially, may have needed to be consolidated with Freedom.”


If FFIN is treated as a subsidiary and consolidated and not a related party, then FRHC would have to restate all financials. More importantly, it would immediately be in violation of the Russian War Sanctions and should be delisted immediately.


FFIN Blacklisted in Kazakhstan

The confusion between Freedom Holdings and FFIN was even realized in Kazakhstan, where Freedom Financial was put on the blacklist for operating illegally. On October 7, 2021, the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market (ARDFM) published a list of entities with signs of illegal activity in the territory of Kazakhstan

In response, FFIN had to explain that they are a Belize company and not regulated by Kazakhstan, comparing themselves to other Freedom subsidiaries. However, if FFIN is treated as a subsidiary and not a related party, FRHC would have to restate all financials and would immediately be in violation of the Russian War Sanctions, resulting in delisting.


Money Laundering Allegations


As recently reported in Karabasmedia, Turlov has used Freedom Holdings to launder money through Russia and Kazakhstan.

According to economic expert Alexey Kushch, "Freedom Finance LLC is an ordinary 'laundry' for money that officials have stolen from the budgets of Russia, Kazakhstan, Ukraine, Kyrgyzstan and those countries of the former USSR where Turlov works. Over the past year and a half, Freedom Finance Bank LLC has legalized several hundred million dollars for such odious persons as Bulat Utemuratov, Sergey Katsuba, Pavel Fuks, Margulan Seisembayev, Sauat Mynbayev, Andrey Birzhin, Askar Mamin, and a number of others."


While we have not been able to validate this story, we hope that the SEC and NASDAQ will investigate it before allowing Freedom to operate in the United States.


Freedom Holdings has FTX written all over it.


We all look back at FTX and question how it happened. While we will not go into detail on all of these points in this report, they are a good starting point:


A wunderkind CEO who embraces the press, regardless of the controversy.

Use of a related party solely controlled by the CEO to obscure financials.

The CEO justifies actions by being a proponent of effective altruism.

No oversight by any real board of directors.

The attempt to buy a US-based brokerage firm.

Investors rely on the assumption that "somebody else did the work."

Keeps money domiciled in tax haven countries.


Conclusion:


This story only scratches the surface of the numerous concerns surrounding the accuracy of Freedom Holdings' financial reports and future projections. There are still many unanswered questions about the divestiture of their Russian arm and whether the transaction is legitimate.

FRHC currently has no analyst coverage and does not host conference calls or provide an investor presentation on their website. While the issue of violating war sanctions is discussed in this report, the flaws and misrepresentation of their business are not adequately addressed.

Ultimately, if FFIN is treated as a subsidiary rather than a related party, FRHC would be required to restate all financials and would be in violation of Russian War Sanctions, which could result

in delisting. These are critical issues that require further investigation and attention from regulators and investors.


Cautious Investing to All

These reports have been prepared by either Liquid Research (“ Research”) or Liquid  Capital, LLC (Liquid “Research Each report specifies the publisher and owner of that report. All reports are for informational purposes only and presented “as is” with no warranty of any kind, express or implied. Under no circumstances should any of these reports or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments.

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