Fund probe widens as Türkiye sets up board to oversee liquidations

State authorities launched an audit of recent capital markets transactions and issued new detention warrants Wednesday, after Ankara created a coordination board to oversee the rapid liquidation of investment funds caught up in the recent turmoil.

President Recep Tayyip Erdoğan announced Tuesday that Vice President Cevdet Yılmaz will chair the board, following a three-hour meeting with economic officials and market regulators. He also tasked the State Supervisory Council (DDK) with examining the crisis.

DDK Chair Salih Tanrıkulu said late Tuesday the council had begun an investigation to determine whether fund transactions and supervisory activities in capital markets were conducted in line with regulations.

How fund turmoil unfolded

The problems emerged in early September, when the Capital Markets Board (SPK) changed its guidelines for investment funds. Funds could no longer put all their assets into a single stock and were required to diversify.

The move sought to address concerns that many funds were heavily invested in a small number of obscure or hard-to-sell stocks.

To comply, some funds began selling holdings, which spooked investors and set off a rush to cash out. Several fund management companies then admitted they could not meet redemption demands. On Sept. 16, authorities ordered 131 funds managed by seven companies into liquidation.

The crisis worsened amid suspected price manipulation in a number of thinly traded stocks, which triggered heavy losses and redemption pressures.

Almost half a million investors hold stakes in the funds ordered to be liquidated, whose combined assets are said to be around TL 1 trillion ($20.4 billion).

Criminal investigation widens

Authorities have also investigated some of the asset managers and arrested or detained several financial executives.

Justice Minister Akın Gürlek said Wednesday detention orders were issued for 34 more suspects as part of the probe.

The latest operation brings the total number of suspects in the case to 217, Gürlek said on social media. Of those, 56 have been arrested and 88 placed under judicial control.

The investigation is not limited to the funds and suspects already identified, he added.

Gürlek said authorities were ⁠also examining trading activity in 26 stocks listed on Borsa Istanbul deemed to have been subject to manipulative transactions, money transfers and connections to individuals and accounts that generated unusually large gains.

He said authorities will pursue legal procedures to transfer assets identified as proceeds of crime to a fund to be established under the Savings Deposit Insurance Fund (TMSF).

Separately, former SPK Chair Ibrahim Ömer Gönül, who was appointed in 2022 and left the post in April when his term ended, was expected to give a statement to prosecutors Wednesday.

Key numbers

The funds held around TL 1.3 trillion in assets on Aug. 31.
By Sept. 16, a day before the SPK announced the liquidation decision, assets had fallen by TL 272.5 billion, or 21%, to TL 992 billion, reflecting investor redemptions and share price declines.
The SPK said last week that 455,758 individual investors held investments in the affected funds.
Fifteen money market funds held TL 307 billion, or 31% of assets due to be liquidated. The other 116 funds, including equity funds, held TL 685 billion, or 69%.
The five largest funds held TL 686.7 billion, or 69.2% of the total.

Two-pronged response

At Tuesday’s meeting, the SPK presented a road map for paying investors, based on the asset and liquidity status of the funds under liquidation.

The Communications Directorate said officials also discussed additional administrative and legal measures to strengthen capital markets oversight and prevent similar cases.

The two bodies tasked by Erdoğan will have separate roles. The Fund Coordination Board will manage the liquidation, aiming to finish it quickly while protecting investors’ legitimate rights and the public interest. It will assess the funds’ assets and liquidity, determine how much each investor is owed and coordinate repayments.

The DDK, working independently of the liquidation, will look backward. It will form a team of auditors, joined by capital markets specialists, to review transactions and decisions at the funds and establish how the crisis emerged, who was responsible and whether any institutions failed in their duties.

Under its constitutional powers, it can directly request confidential and public records, physical and digital, from relevant institutions, including the SPK and Borsa Istanbul (BIST).

Auditors will examine financial records to identify suspicious transactions, the roles of those involved in supervision and any actions that may have violated regulations or harmed market functioning, from both administrative and legal perspectives.

Once the investigation is complete, the DDK will submit its reports to Erdoğan. It may also forward its findings to the relevant administrative and judicial authorities.

DAILYSABAH