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Wednesday, June 12, 2024

More Good Than Harm: Why Attacks on Freedom Holding by Its Competitors Are Rather an Advertisement Than Damage

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Another information attack against Freedom Holding Corp. looks like an attempt by the bears to recover the money they lost two months ago when they tried to bring down the company by disseminating misinformation. This time, they are trying to juggle with catchy headlines about an investigation by the SEC and DOJ.

This may sound a little bit strange but when someone wages an information war against a company in the financial market, this means that the target company is kind of successful. It is quite obvious that any groundless claim that made its way to a media outlet with global influence cost a lot for those who wanted this misinformation to be publish. It is also clear that no one would waste resources to attack a company drowning in problems. It is more common that such attacks are aim at strong performers. Given that Freedom Holding Corp. has been targeted with well-funded and groundless claims in the media for the second time over the past two months, it would be wise to look at this company more closely, which is exactly what we’ve already done.

Someone’s growth is another’s envy

The holding operates in 16 countries and is list on NASDAQ in New York under the ticker of FRHC. The company’s cap is more than $5 billion. Freedom Holding has been developing the entire ecosystem in its domestic market in Kazakhstan, which includes a broker, a bank, insurance companies, a telecom operator and lifestyle services.

Over the first eight months of this year, Freedom Bank showed the highest rates of growth among banks in Kazakhstan, according to the National Bank, a key regulator for the market where the bank has operated for several years now. For example, the bank’s deposits have grown by 44%, which is higher than in the market on average. Moreover, Freedom is the longstanding leader among Kazakhstani brokers, as the data from the Kazakhstan Stock Exchange shows. The company has facilitated thousands of retail investors to enter international stock markets.

In the 2023 fiscal year, Freedom Holding Corp. reported $795.7 million in revenue, a 15% increase over last year; a 57.4% increase in assets and $205.6 million in net profit. In other words, it is quite understandable why some dirty competitors and speculators couldn’t resist being jealous when the holding is growing so fast, even as global economies are slowing down.

The attempt has failed

Two months ago, Freedom found itself in the epicenter of public attention after Hindenburg Research, well-known for its bearish reports, issued an investigation into the company. Hindenburg had no doubt that the method it had tested on other companies would allow it to spark an information storm made out of unproven facts. Meantime, the fund opened short positions against the holding stock in order to make a profit once the share price was crushed. However, the bears didn’t take into account that the highly competitive market can flip their misinformation upside down and hurt themselves in the process.

This attempt to make a profit on short positions against Freedom by Hindenburg Research failed. CEO of Freedom Holding Timur Turlov, who is a longstanding advocate for transparency and dialog, immediately commented on each accusation, while the annual financial statement of the holding left no chance for attackers. Shareholders and clients of Freedom didn’t buy the so-called investigation and showed their support for the company. As a result, FRHC stock value started to grow and the short sellers were forced to spend their money to buy shares at higher prices. In turn, the share price rose higher and higher. Professionals call this situation a short squeeze, which pushed the price of Freedom Holding’s shares to higher than $100 per share, while the bears’ losses could amount to more than $20 million, according to expert estimates.

A calm period didn’t last long, though. No surprise that the bears wanted to recover their losses.

Weak revanche

Another information attack happened quite recently. This time, attackers made a bet on the names of powerful agencies. For instance, CNBC published an article claiming that the U.S. Securities and Exchange Commission (SEC) has been probing Freedom for months. But is it unusual if an authorized agency is probing high-profile accusations even if they are groundless?

Of course, Freedom Holding is interested in this investigation as it wants it to show pseudo analytics in their true colors and even hired a forensic specialist, who in conjunction with lawyers is working on an independent report on the investigation by Hindenburg Research.

Interestingly, the attackers also cited an investigation by the U.S. Department of Justice (DOJ), apparently to strengthen their claim. However, the irony is that neither Freedom nor the DOJ knows about this. Even CNBC wasn’t sure and wrote that “probes of this kind can take years and may not lead to criminal or civil charges. So far, there have been no formal charges or allegations of wrongdoing.”

This is an old strategy of throwing at someone as many accusations as possible in order to make people believe in things that don’t exist. However, in the age of modern information, this strategy can only work for a while. The holding operates in the U.S. jurisdiction, remember? So, Freedom has a strong team of professional lawyers. The big mystery is what the competitors are hoping for. Do they really believe that the U.S. public agencies would punish an American company just based on unproven and basically false claims? That is a good question.

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