A Shady Kazakh Company Actively Gaming Passive U.S. Markets

If you headed a financial services company based in that Market of Dreams known as Kazakhstan and Hindenburg Research published evidence your company “i) brazenly skirts sanctions (ii) shows hallmark signs of fake revenue (iii) commingles customer funds then gambles assets in highly levered, illiquid, risky market bets (iv) and displays signs of market manipulation in both its investments and its publicly traded shares”, how hard would it be for you to generate $140 million in forced stock buying by gaming inclusion into the Russell 1000 index? If your company is Freedom Holding Corp. ($FRHC), it turns out it’s not that hard.

FRHC, which found no merit to Hindenburg’s allegations in its internal investigation, seemingly only needed to rent an office in the U.S. – perhaps not coincidentally in the Trump Building at 40 Wall Street – and then drop that address as its Principal Executive Office in its SEC filings.

The below is from the cover of FRHC’s Q1 FY25 10-Q (ended June 30, 2024)

Then Q2 FY25 (ended September 30, 2024)

The Russell 1000 and 2000 indicies are intended to “capture approximately 99% of the US equity market and 100% of the investable US market”. The Russell 1000 (“R1”) focuses on the 1,000 largest U.S. companies. Russell determines eligibility as a “US company” based on three factors: company headquarters, primary listing domicile, and company legal domicile.

FRHC went public in the U.S. by reverse merger, so its legal domicile is in Nevada. Its primary listing market is the U.S. The only issue was where it’s headquartered.

Approximately 40% of the revenue reported by Russell 1000 constituents is from outside the U.S. FRHC therefore seems to be an outlier in this universe because “The main market of [its] operations is Kazakhstan”. It appears to have close to zero revenue from the U.S.

The Russell 1000 is reconstituted each year – for 2025, the ranking date is as of April 30, 2025. From April 30, 2024 through April 30, 2025, FRHC’s stock increased 110%. If it were considered a U.S. company, given its market cap as of the 2025 reconstitution date, FRHC would seemingly be added to the R1. One broker we talked to estimated that there would be forced buying of ~800,000 shares of FRHC if it were added to the R1. At yesterday’s closing price, that would be forced buying of approximately $140 million. This seems to be reflected in the stock price performance since April 30, 2025 – since then, it’s up 24.5%.

The high rate of passive investing warps the U.S. equity markets in various ways. In this case, a simple lease agreement seems to be all that’s needed to significantly enrich some highly questionable characters who operate a financial business focused on Kazakhstan. Either this is a blatant abuse of the U.S. capital markets or Kazakhstan has come a very long way since the first Borat movie was released.

Neither Muddy Waters nor I have any position in FRHC.