Hindenburg Research says Freedom Holding helps Russians evade sanction

Hindenburg Research, the prominent short seller that’s bet against Jack Dorsey’s Block, Carl Icahn and electric vehicle startup Nikola, is now taking on a $4.6 billion online brokerage based in Kazakhstan.

Freedom Holding Corp. was founded in Moscow in 2008, before later moving to Kazakhstan, and listed on the Nasdaq in 2019. After Russia invaded Ukraine early last year, U.S. sanctions essentially severed ties between American and Russian banks and companies. Freedom sold off its Russian business.

But according to a report from Hindenburg on Tuesday, those ties remain 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 firm wrote.

Shares of Freedom Holding fell about 4% on Tuesday. Hindenburg’s report came a day after Freedom warned it was notified by Nasdaq of noncompliance for failing to submit its quarterly earnings report for the period ended June 30.

In Freedom Holding’s latest annual report, the company said revenue for the year ended March 31 was $795.7 million, up well over 100% from two years earlier.

At the heart of the company’s growth, Hindenburg alleged, was sanctions evasion, including from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). Hindenburg highlighted Freedom’s acknowledgement to the SEC 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 problem go much deeper.

The firm said it learned through interviews with multiple former employees that client money ran from Freedom’s offices in Russia and Kazakhstan through a “Belizean entity privately owned by Freedom’s CEO.” SEC filings show that entity represented 60% of Freedom’s fee and commission income for the year ended March 31.

Freedom CEO Timur Turlov is one of the wealthiest men in Kazakhstan, despite being sanctioned by Ukraine for his financial ties to Russia.

One former senior executive alleged to Hindenburg that Russian money laundering was rampant. Regarding compliance standards, Hindenburg said 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 firm said, quoting the former employee. “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 just four months after the U.S. sanctioned Russia in 2014. Those sanctions, prompted by Russia’s invasion of Crimea, created a problem 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 outside firm in the U.S., told 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 and audited financial statements on our website,” the representative said.

Freedom shares have been on a tear the last few years, climbing more than eightfold since the end of 2018, largely undeterred by global conflicts. The company reported net income of $205.6 million in fiscal 2023, with about 79% coming from operations in Kazakhstan.

Hindenburg, founded in 2018, is known for taking short positions and publishing detailed reports explaining the logic behind its bets. The firm has wagered against Block (formerly Square), Icahn Enterprises, Gautam Adani’s Adani Group, and Trevor Milton’s Nikola.

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