The story that Freedom was included in the report of well-known US “short writers” of Hindenburg Research thundered in August last year. It ended pretty quickly; The shares not only did not fall as a result of the attack by the bears, but also reached their high levels again. This is due to the fact that the company immediately responded to the accusations, and only after 1.5 months its arguments were supported by the S&P Global Ratings organization, the ratings of the company and its subsidiaries were verified, and the rating was removed from the CreditWatch list.
The essence of the accusations
Freedom Holding is on the radar of hedge fund Hindenburg Research, which specializes in analyzing companies and detecting financial fraud. As a result, company shares often crash following the reports, and Hindenburg makes money from “shorts” (by pre-purchasing “short” shares of the business about which he plans to launch an investigation and then buying them back at a lower price). price).
On August 15, Hindenburg Research published a report on Freedom Finance, accusing it of close ties to Russia, unreliable financial performance, and sanctions evasion (poor scrutiny of its clients).
Freedom immediately stated that they viewed the Hindenburg investigation as speculation. It was revealed that the company’s annual report, published a few weeks before the bear attack and published on the SEC website, included the following statements: independent auditor analysis (Deloitte) responds to Hindenburg’s allegations.
In short, the chairman of the holding, Timur Turlov, sold his Russian assets and severed his ties with the Russian Federation, and an agreement was reached. Approved by the Central Bank of the Russian Federation. The auditor also very carefully checked the transactions, customers and verification procedures (compliance check) that all Freedom companies apply to customers and their capital. It was the KYC (Know Your Customer – know your customer) and AML (Anti-Money Laundering – anti-money laundering procedures) rules that were largely reserved for the auditor’s control, resulting in a clean sheet. : no sanctions violations were found and the verification procedures of Freedom’s clients were considered highly professional. The company’s balance sheet and entire financial position, including revenue, are also verified and approved.
On the news of this investigation being announced, shares of Freedom Holding (ticker FRHC) fell by 8% but recovered their decline on the same day. And the next week it even rose to $101 per share. The daily trading volume of the holding’s securities exceeded $100 million, and the winner was Freedom.
independent verification
Why did the directors initiate a new audit if the company’s auditor already showed everything in the annual report?
“For the public, it was essentially their word (Hindenburg) against our word. And someone probably decided that “there must be something there.” The only way to respond to such attacks is through openness and transparency. Reputation is our main asset. We have done a great job, we have grown a lot, we can now be really proud of our procedures and processes,” said Timur Turlov, CEO of the holding. — As a result, the audit showed that we were as “clean” as possible. “Some of Hindenburg’s accusations were technically incorrect, some were misinterpreted, and some were unfounded.”
The independent audit lasted about 4 months, experts examined documents, checked the company’s offices, analyzed data and conducted interviews with many managers and employees of the holding, consultants and contractors. The audit focused on the holding’s main subsidiaries (Kazakhstan, Cyprus), as well as Freedom Securities Trading, Inc. (FST Belize).
What conclusions did the experts reach?
An independent audit found that the company’s growth in recent years has been driven primarily by organic factors (including increases in the number of customers and trading volume), acquisitions, and securities trading profits and revenues, as described in documents Freedom Holding filed with the Securities Exchange Commission . As disclosed by the Securities and Exchange Commission (SEC) and its audited financial statements. The growth was not the result of manipulative or other illegal or improper business practices.
Independent experts also concluded that the company has strong global and local enforcement and anti-money laundering (AML) procedures, controls and policies implemented through its business and compliance staff.
There was also no evidence that he evaded sanctions or worked with sanctioned oligarchs.
This is really important. Additionally, no evidence was found that the holding company manipulated its own shares or bonds of the Kazakhstan Sustainable Development Fund. Plus has demonstrated compliance with procedures and controls regarding business transactions between its Cyprus subsidiary Freedom Finance Europe Limited and FST Belize, including anti-money laundering and sanctions compliance.
Brief summary of the detailed report published On the website of the US Securities Commission (SEC), Freedom after placement of shares, as befits a public company autumn 2019 On the NASDAQ stock exchange.
“All “investigations” are based on statements from anonymous sources, and the goal is very simple: to create a constant background of negative information around the company. The Hindenburg investigation into the holding was based on the same principle. The most important thing is that they did not manage to create panic among our customers and shareholders, especially after the publication of our annual report and the clean report of auditor Deloitte, since many of their statements appeared unfounded,” Turlov said earlier. And now he added an open, independent investigation to the company’s reputation.
The holding currently provides financial services in 19 countries, serving more than 370 thousand customers, with a capitalization of approximately 5 billion dollars. The headquarters is located in Kazakhstan, where the company forms a whole. ecosystem services (digital bank, two brokers, payment system, insurance companies, etc.).
Let us also point out that the company has not only grown as a banking and financial holding company, but also as a responsible representative of social development in Kazakhstan. Thus, Liberty Holding published its first report at the end of 2023. sustainability report For fiscal year 2023. The company has been implementing a comprehensive ESG business transformation (ESG, environmental, social, governance – “nature, society, governance”) for a year.
ESG principles include environmental awareness, responsible treatment of employees and customers, transparent company operations and participation in charitable initiatives. Thus, the company allocated 349.8 million tenge to social enterprises and 61.7 million tenge to environmental projects during the year. It measures the amount of greenhouse gas emissions (9.2 thousand tons of CO2 equivalent) and monitors water consumption (48.8 megalitres). , aims to reduce labor waste (through digitalization of services, etc.).
As part of promoting green economy principles in 2023-2027, Freedom plans to invest 200 billion tenge in sustainable financial instruments and projects in line with ESG principles, including investing in people and communities, improving corporate governance, issuing ESG bonds. Support green and social businesses.