The founder of Tera Yatırım, a Turkish brokerage whose fund-management subsidiary reported missed payments last week, will be held in custody pending trial.
The arrest of Emre Tezmen, along with four other people, comes as investors in 131 Turkish funds face a wait of up to six months while their holdings are sold, with no certainty yet about how much money they will get back.
The crisis began when some funds, including those run by Tera Portföy and Pusula Portföy, struggled to pay people trying to withdraw their savings. They held large stakes in shares that were difficult to sell quickly as selling too many at once would drive down prices and reduce the money available to repay investors.
The fund management branch of Tera Yatırım said on 16 September that it had failed to make some payments due to investors withdrawing from two of its funds while Pusula Portföy also reported delays.
Tezmen, first detained on 19 September, was formally arrested in the early hours of Wednesday alongside Tera board members Kerem Alkin and Emre Alkin, Tera Portföy general manager Alper Öztürk and Pusula Finans Holding chairman Serdar Turhan, Turkish broadcaster NTV reported.
Kerem Alkin retired from the foreign ministry last year and served as Turkey’s ambassador to the OECD from 2021 to 2024, while his brother Emre is a well-known economist and television commentator.
Turkish authorities have frozen assets linked to executives at several financial firms and restricted transactions by some of them, their spouses and close relatives, state news agency Anadolu reported.
Prosecutors have also requested records of money and crypto transfers abroad since 2024 to establish whether assets were moved overseas.
Brokerage Bulls Yatırım said on Wednesday that its chairman, Kemal Akkaya, had been released after giving testimony. It said Akkaya told prosecutors the firm had no involvement in fund structures described as “Ponzi” or “chain schemes”.
Last Friday, soon after the scandal broke out, Turkish Justice Minister Akın Gürlek stated in a social media post that “those who exploit the sweat, labour, and savings of our citizens will be held accountable before the law!”
The minister also added that authorities were pursuing allegations involving “Ponzi-like” methods. By then, four suspects had been remanded in custody and 51 people barred from leaving the country.
How the funds unravelled
The funds put most of their money into shares that were rarely traded. With relatively few shares available, even modest buying could push prices up.
Those increased valuations flattered reported returns and drew in new savers whose cash went into the same or related stocks. Some fund managers also borrowed against the shares they held to buy more.
However, when investors sought to withdraw their money, selling those holdings risked driving down prices significantly and quickly. As withdrawal requests grew, that became an immediate problem since the funds needed cash to pay investors, but selling their holdings fast risked pushing share prices down further.
The warning signs predated last week’s payment delays.
In June, index provider MSCI cautioned about “possible coordinated trading” involving fund holdings linked to smaller Turkish listed companies. It said this could be distorting prices. At the time, MSCI did not name Tera or any other company.
Tera’s own share price rose more than 50,000% from its listing to its peak, but after Turkey’s regulators tightened rules affecting investment funds in August, the downfall of the share price accelerated.
MSCI has said it may consider further action concerning the treatment of Turkish securities in its indices if it sees insufficient progress by its November review.
Containing the damage
The Capital Markets Board has ordered the liquidation of 131 funds run by seven firms.
On Wednesday, it said 455,758 distinct investors held stakes in them. İşbank and state-owned Ziraat Bank will oversee the liquidations as the regulator extended the period for selling themfrom three to six months on 21 September.
“This regulation was made to enable the funds subject to liquidation to be sold under the most favourable conditions possible, taking into account their portfolio structures and market conditions,” the regulator stated.
Investors are supposed to receive proceeds in proportion to their holdings as assets are sold, however, it remains unclear how much they will ultimately recover.
Finance Minister Mehmet Şimşek put the funds’ value at $18.3 billion (€15.9bn) and added that he does not expect the crisis to spread across Turkey’s financial markets.
“We have placed the problematic area under quarantine,” the minister said in a television interview, noting that the affected funds make up just 10% of the sector.
The Borsa Istanbul All Shares index has fallen 12% since the start of last week, with about 50 of its stocks losing 40% or more.