Freedom Holding Corp. Refutes Hindenburg Research Allegations

Freedom Holding Corp. has rejected the allegations made by short-selling firm Hindenburg Research in its report published on August 15, 2023. The company’s founder and CEO, Timur Turlov, stated that Freedom Holding would respond to the report strictly within the framework of the law while continuing to focus on the development of its business.

On August 15, 2023, Hindenburg Research released a report accusing Freedom Holding Corp. of sanctions-related violations and inaccuracies in its financial reporting. The report did not provide evidence substantiating these allegations.

In 2019, Freedom Holding Corp. completed its initial public offering (IPO) on the NASDAQ stock exchange, where its shares continue to trade under the ticker symbol FRHC. Listing on a U.S. exchange requires companies to undergo rigorous compliance procedures, including sanctions screening, anti-money laundering (AML) controls, and adherence to strict disclosure and financial reporting standards. Since its NASDAQ listing, the company has operated under the oversight of the U.S. Securities and Exchange Commission (SEC), the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM), and other regulatory authorities in jurisdictions where the company operates.

Short sellers such as Hindenburg Research typically follow a strategy in which they borrow shares from a broker and sell them at the current market price, then publish a critical report aimed at driving the stock price lower before repurchasing the shares. The difference between the sale and repurchase prices constitutes their profit.

The Hindenburg report did have a temporary impact on Freedom Holding Corp.’s share price, which was the stated objective of the short sellers. Prior to the report, Freedom shares traded at approximately $75–76 per share. On the day of publication, the stock declined by 3.2%, but quickly recovered. Within three trading days, Freedom Holding Corp.’s shares had risen by 15% compared to the August 15 closing price. By the end of the week, the stock had climbed to approximately $80 per share, fully recovering the decline and exceeding pre-report levels.

“Within a week of the publication of the Hindenburg Research report, the stock price had not only fully recovered but had surpassed pre-attack levels, rising to approximately $80–84 per share,” Kazakhstan’s business publication “Kursiv” reported.

The rapid recovery has been partly attributed to Hindenburg Research’s reputation. While many companies targeted by the short seller have experienced significant market-capitalization losses and lengthy recoveries, investors in the case of Freedom Holding Corp. appeared to conclude relatively quickly that the allegations lacked immediate confirmation. As a result, the short thesis failed to gain momentum, leading to what some observers described as a short squeeze.

Among the companies previously targeted by Hindenburg Research are Singularity Future Technology, HF Foods, Adani Group, controlled by Indian billionaire Gautam Adani, and Elon Musk during his acquisition of Twitter.

Timur Turlov’s Response to the Hindenburg Report

In an extensive interview with “Kursiv”, Timur Turlov discussed the allegations, their consequences, and Freedom Holding Corp.’s response.

One of the report’s claims concerned Turlov’s alleged control over the company’s former Russian assets. In 2022, Freedom Holding sold its Russian operations to former Freedom Finance executive Maxim Povalishin. Following the transaction, the businesses were rebranded and now operate independently under the names Tsifra Broker and Tsifra Bank.

“The business has been separated, and neither I nor any other FRHC shareholders or members of senior management control it. As for Hindenburg’s whistleblower, we believe this is a person who worked for us for a relatively short period of time. That individual did not possess the necessary expertise to continue working with us, but apparently developed resentment toward the company and a desire for revenge. It seems they were unable to move on after losing court cases against us,” Turlov said.

The report also referenced the fact that Turlov is subject to Ukrainian sanctions and claimed that the company opens brokerage and banking accounts for non-residents, including Russian citizens. According to Turlov, despite the report’s assertions, providing financial services to non-residents – including Russian citizens who are not subject to sanctions and are not affiliated with sanctioned individuals – is not prohibited by law and does not violate sanctions-compliance requirements. He added that the company significantly strengthened its sanctions-compliance procedures after 2022.

“The fact that we work with Russian clients should not be concerning. We have one of the strongest sanctions-compliance systems in the region. As for clients who are subject to SDN sanctions, we closely review each case individually. Any interaction with such persons is conducted strictly in accordance with applicable sanctions restrictions,” Turlov explained.

In the same interview, the Freedom Holding CEO addressed allegations that the company manipulates trading in its own shares.

“Claims of stock-price manipulation may sound plausible until researchers discover that a significant proportion of our shareholders are also our clients. This explains the high concentration of trading activity in our shares through brokers that service our firm. In essence, they are simply executing transactions on behalf of our clients,” Turlov said.

Regarding regulatory fines received by the company, Turlov stated that most were related to technical violations associated with the company’s rapid growth. He emphasized that Freedom Holding Corp. has never faced allegations from regulators to whom it regularly provides disclosures and information upon request.

According to Turlov, the Hindenburg report is unlikely to have a significant long-term effect on the company’s valuation.

“Our shares declined somewhat, which is normal. In any uncertain situation, some investors choose to sell. We believe this criticism will have limited impact because we are able to communicate directly with our clients, many of whom are also our shareholders. That is one of the reasons for the concentration of our shares among certain clearing firms,” he said.

Turlov added that the company would continue to act strictly within the law in response to the report, while remaining focused on business development rather than disputes with short sellers.

“We will continue focusing on our business, improving ourselves, and giving no reason for attacks. Those who spend their time fighting do not make money. Those who succeed are the ones who know how to do their job and build constructive relationships. Few companies have been attacked more aggressively than we have, and few have been subjected to as much spending on negative PR campaigns. Yet none of it has had a lasting effect. Every year we serve more clients, and all of our key metrics continue to grow,” Turlov concluded.