Turkey’s stock market experienced a dramatic collapse in mid-September when the BIST 100 index plunged sharply, driven by a major market manipulation scandal. Approximately 455,000 investors were affected, resulting in over 45 arrests and the resignation of a prominent politician from the ruling party, according to reports.
The scandal emerged after several investment funds, including those managed by Pusula Portfoy and Tera—two Tera funds held assets of about €6.5 billion ($6.37 billion)—failed to make timely repayments to investors. As a result, Turkey’s Capital Markets Board (SPK) intervened and shut down the funds of seven asset managers, ordering the liquidation of 131 funds.
Details of the Investigation and Market Actions
The Istanbul Public Prosecutor’s Office launched investigations into allegations including fraud, violations of capital markets law, and criminal organization formation. Authorities suspect fund companies inflated fund values artificially while holding largely worthless stocks.
Executives from investment firms were among those arrested. Additionally, assets belonging to 42 individuals and 46 legal entities have been frozen. In response, the Istanbul Stock Exchange excluded 27 stocks from the BIST 100 index starting October 1.
Investor Outlook and Fund Liquidations
The affected funds are being liquidated, with assets to be sold off and proceeds distributed to investors according to their shares. The liquidation timeline was extended from three to six months to ease market pressure and avoid forced sales at low prices. However, speed of liquidation will depend on market conditions.
Financial experts warn that there is no guarantee investors will recover their full investments. Money market funds might largely be redeemed, but funds holding “junk stocks” and hedge funds may face more difficulties. Analysts emphasize distinguishing between losses from normal market risks and losses due to irregularities or manipulation.
Responsibility and Political Implications
Experts suggest that fund founders and managers might bear liability for losses if assets are insufficient to cover investor claims, citing structural management and oversight failures beyond a simple liquidity crisis.
The political consequences include the resignation of Fatma Betul Sayan Kaya, a deputy chairperson of the ruling Justice and Development Party (AKP), amid allegations linked to stock transactions involving her and her husband related to the crisis. The opposition plans to demand a parliamentary investigation to determine any political involvement in the scandal when the parliament reconvenes.
