Turkey fund scandal puts 455,000 investors in limbo as investigations widen

Turkey’s Capital Markets Board has shut funds at seven asset managers and ordered 131 funds liquidated after a market crisis affected about 455,000 investors. The move followed a 6 per cent fall in the BIST 100 in one day in mid-September and a decline of about 12 per cent over several trading days.

The Istanbul Public Prosecutor’s Office is investigating suspected fraud, breaches of capital markets law and the formation of a criminal organisation, Justice Minister Akin Gurlek said. More than 45 people have reportedly been arrested, including investment firm executives. Authorities have also frozen assets belonging to 42 people and 46 legal entities, according to Gurlek.

Prosecutors suspect some fund companies artificially inflated valuations while holding shares that were worthless or difficult to trade. The allegations have not been established. Investors’ eventual recoveries remain uncertain and may depend on the value of fund assets and how readily they can be sold.

The liquidation period has been extended from three months to six. Assets are to be sold and proceeds distributed according to investors’ shares. The longer period is intended to reduce pressure to sell holdings quickly, though individual funds may be wound up sooner depending on market conditions.

Fatma Betul Sayan Kaya, deputy chair of the ruling Justice and Development Party and a former minister, resigned after asking President Recep Tayyip Erdogan to relieve her of her posts. She faced allegations concerning stock transactions by her and her husband linked to the crisis. Kaya said her position should not impede the investigation; the allegations remain unproven.

An opposition lawmaker has said he will seek a parliamentary inquiry when Parliament reconvenes, including into whether politicians were involved. Any potential investor shortfall and responsibility for alleged misconduct remain to be determined.