Key facts
- Around 130 Turkish investment funds worth $17 billion are being liquidated due to alleged Ponzi-like schemes.
- The crisis has affected approximately half a million people.
- Former family minister Fatma Betul Sayan Kaya resigned after accusations of profiting from share sales before the crisis.
- President Erdogan vowed to prosecute those responsible for market manipulation and fraud.
- Fund managers concentrated holdings in illiquid stocks, inflating prices.
- Authorities have a six-month timeline to sell assets and repay investors, with recovery prospects uncertain.
A crisis involving Turkish investment funds accused of running Ponzi-like schemes has affected half a million people, with authorities ordering the liquidation of approximately 130 funds worth $17 billion earlier this month. The financial turmoil has quickly escalated into a major political crisis for President Recep Tayyip Erdogan’s administration, exposing connections between the funds, their managers, and figures within the ruling elite.
Fatma Betul Sayan Kaya, a former family minister and deputy head of the ruling Justice and Development Party (AKP), resigned on Sunday following accusations of making substantial profits from share sales shortly before the crisis triggered a stock market sell-off on September 16.
President Erdogan addressed the controversy on Monday, vowing to prosecute those responsible for market manipulation and fraudulent trading schemes. "Whoever lays a hand on the nation's rights, assets or legal interests will face us and the state," he stated.
The implicated funds concentrated their holdings in illiquid stocks with low free floats, making their prices easier to inflate. For instance, the Tera investment fund reportedly generated a return of over 1,500 percent in the past year, a figure described as illogical by market standards.
Authorities have set a six-month deadline to liquidate the funds' assets and repay investors, though experts are pessimistic about the extent of recovery, particularly regarding inflated gains. Many affected individuals are believed to be ruling-party voters, potentially increasing the political ramifications.
Brokerage firms and financial groups, including Tera Group and Pusula, have been accused of involvement, with politically connected individuals serving on their boards. Tera and others deny wrongdoing.
Emre Tezmen, chairman of Tera Group, who has been arrested on charges of running a Ponzi-like scheme, previously held a senior position on the board of the Central Securities Depository of Turkey (MKK). Muhammed Yariz, chairman of Pusula Portfolio, also arrested, has past ties to the AKP.
Connections extend to companies like Ozata Denizcilik, a shipbuilder involved in projects for the Turkish navy. An Ozata Denizcilik board member arrested on Monday is the son of a former member of the banking regulator that approved Tera Investment Bank, a sister company to Tera’s brokerage business. This board member is also the son-in-law of a deputy finance minister. Tera’s brokerage reportedly controlled 95 percent of Ozata Denizcilik’s shares at one point, contributing to its valuation surge.
On Friday, Justice Minister Akin Gurlek announced the freezing of assets for 46 legal entities, 18 funds, and 42 individuals, along with travel bans for 37 suspects. However, this sweeping order caused fears of market disruption when Borsa Istanbul reopened on Monday, leading authorities to reverse it on Sunday. Astor Enerji, a large listed company, confirmed its restrictions had been lifted and operations continued uninterrupted.
Despite the reversal, Turkish stocks fell 2.38 percent on Monday. Erdogan is set to chair a committee meeting on Tuesday to discuss further steps for investor repayment.