- Turkey's fund scandal has triggered investigations, arrests and the liquidation of 131 investment funds affecting more than 455,000 investors.
- The crisis began with scrutiny of low-free-float stocks and funds that had built large positions in companies such as Özata Denizcilik.
- The probe has widened into a political scandal after allegations involving a senior AK Party official, while authorities continue to investigate suspected market manipulation.
Turkey is in the grip of a major financial scandal that has triggered investigations into suspected stock-market manipulation, the arrest of senior market executives and mounting uncertainty for hundreds of thousands of investors over when and how much of their money they will recover.
The crisis has also reached President Recep Tayyip Erdogan's ruling AK Party, turning what began as a market and liquidity crisis into a wider political and criminal investigation.
How the crisis began
The first major regulatory move came on Aug. 28, when Turkey's Capital Markets Board (SPK) tightened rules governing investment funds, including limits on holdings in low-free-float stocks and investments in companies linked to fund managers.
The regulator had already identified unusual activity in low-free-float shares late last year and subsequently began scrutinising stocks whose prices had surged as funds built large positions.
One of the key names in the investigation is Emre Tezmen, chairman of Tera Yatırım Menkul Değerler, who was arrested and remanded in custody. Tera's shares had risen by almost 40,000% since their 2022 listing, according to Bloomberg.
Another focus is shipbuilder Özata Denizcilik. Its shares rose from around 220 lira in early April to 4,980 lira by Sept. 15. Tera and funds managed by its portfolio arm built substantial positions in the company during that period.
The sharp gains attracted new investors and more money into the funds. But when investors began seeking redemptions, the funds faced a liquidity squeeze. Their holdings were difficult to sell without pushing prices sharply lower, creating a cycle of falling asset values and increasing demands for cash.
On Sept. 15, Pusula Portföy failed to meet investors' redemption requests. The following day, Turkey's BIST-100 index fell more than 6%, while trading was briefly halted as the sell-off intensified.
131 funds ordered into liquidation
On Sept. 17, the SPK ordered the liquidation of 131 funds managed by seven portfolio-management companies, including Tera Portföy, Pusula Portföy and Hedef Portföy.
The funds had assets of about $18 billion and affected 455,758 individual investors, according to Reuters.
Police raided Tera's headquarters that same evening. The following day, Tera Portföy said it was also facing difficulties meeting client redemption requests and withdrew from an agreement to acquire Pusula Portföy.
The authorities then expanded the investigation into possible criminal wrongdoing. On Sept. 18, Justice Minister Akın Gürlek said 20 suspects had been arrested in two separate investigations into market manipulation, while dozens of others were barred from leaving the country.
Among those later detained were Tera founder and chairman Emre Tezmen, Tera Portföy general manager Alper Öztürk, board members Emre and Kerem Alkin and Pusula Holding chairman Serdar Turhan. All five were remanded in custody on Sept. 23.
The investigation subsequently widened, with dozens more suspects detained, including former Turkish central bank deputy governor Erkan Kilimci, who had joined the Tera group before resigning as the probe was under way.
From financial crisis to political scandal
Turkish authorities and media have described the case as a "Ponzi-like" scheme, referring to the way valuations of some funds and stocks surged before the liquidity crisis.
The authorities have also frozen assets belonging to investment companies and individuals linked to the investigation, while prosecutors have continued to examine transactions involving several companies and funds.
The government has sought to contain the fallout. Finance Minister Mehmet Şimşek convened the Financial Stability Committee, while the central bank increased lira liquidity through repo operations.
Erdogan said the problem was confined to a limited part of the capital market and did not threaten Turkey's financial system or economy. He said those responsible would be held accountable. Reuters reported that the government was also reviewing measures to ensure more stable functioning of the capital markets.
But the investigation took a political turn on Sept. 26, when opposition Yeni Party spokesman Zeynel Emre accused AK Party deputy chair Fatma Betül Sayan Kaya and her husband of investing 163 million lira in April in shares of Özata Denizcilik and selling them for about 2.17 billion lira before the mid-September market sell-off.
Kaya denied no specific allegation in her resignation statement but said she believed she should take political responsibility while the claims were examined. She asked Erdogan to remove her from all party duties, and the president accepted her resignation. Reuters reported the allegations and her resignation, while noting that the claims had not been established.
What happens next
The investigation continued on Sept. 28 with new arrests involving executives from Destek Holding and Özata Denizcilik, indicating that the probe has moved beyond the original circle of fund managers.
At the same time, Turkey lifted asset freezes imposed on 46 companies after a new assessment by the SPK, while measures against individuals remained in place.
For the 455,758 investors caught up in the liquidation of the 131 funds, the immediate question is how much of their money they will recover and when.
The liquidation process could take up to six months, with fund assets to be sold and proceeds distributed to investors according to their holdings.
What began with unusual trading in low-free-float stocks and a liquidity crisis in investment funds has now become a broad market-manipulation investigation with criminal and political implications. The authorities' investigations will determine whether the transactions involved wrongdoing.
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