Turkish dismay

Unhedged

The episode explores a massive market scandal in Turkey where investment funds used pump-and-dump schemes to inflate prices. Host Rob Armstr

Key takeaways

• Investment funds Terra and Pusula utilized coordinated buying to artificially inflate share prices.
• Retail investors were attracted by reported returns as high as 43,000% over a three-year period.

Main topics

• Turkish market manipulation scandal
• Pump and dump schemes

Notable quotes

Nothing teaches us more about how markets really work than a market scandal.

Conclusion

The episode highlights the systemic risks posed to retail investors wh

Transcript preview

Speaker 1 (0:00) Nothing teaches us more about how markets really work than a market scandal. And in Turkey, they have an absolute banger going in a market and an economy that is already under pressure. Today on the show, how do you say pump and dump in Turkish? This is Unhedged, the finance and markets podcast from the Financial Times, and I am Rob Armstrong, coming to you from the clammy FT studios in New York, New York. Joining me today is one of my favorite colleagues, J.P. Rathbone, who has either worked on or led, I think, every foreign desk the FT operates. Am I exaggerating, J.P.? Speaker 2 (0:45) Let's just leave that exaggeration and enjoy it. Ha ha ha! Speaker 1 (0:50) No, but really, you've run Africa, Latin America. Now you're in Turkey. You're basically the British Empire. You have most of the surface of the planet covered, I would say. Speaker 2 (1:00) No, no, it was Latin America. That's where I cut my teeth. Not Africa. Speaker 1 (1:03) Oh, not Africa. Okay. Well, just walk me through this very colorful scandal in the Turkish stock market. Speaker 2 (1:14) Yes, of course. So the envelope, to understand the stories, is a classic pump and dump. Scheme run by spiffs and you go back about two years and there are two I Speaker 1 (1:24) have to stop you on behalf of our American listeners spiff Give me a working definition of the word spiff JP Speaker 2 (1:33) A guy who opens his coat and says, I've got a whole load of watches. Do you want one? Speaker 1 (1:40) Okay. So we have a pump and dump run by spivs. Go on. So Speaker 2 (1:45) go back about two years and there are two main investment funds in this sorry tale. One is called Terra and the other is called Pusula. And they establish closed end funds with limited subscribers and they start their magic. which basically involves buying each other's shares and coordinating to buy the shares of other small liquid companies. And we get concentrated buying. Share price zooms up. Their own net asset value increases. And what a wonderful performance that is. Retail investors jump on board thinking, woohoo, this is amazing. And we're talking like 43,000 % returns over three years. The bubble pops all of a sudden. And everyone is thinking, whoa, where did this come from? Why did it happen? Who is responsible? Who can we blame? And how can I get my money back? And that, in a nutshell, is what's happened. Speaker 1 (2:42) Yeah, it sounds very familiar. It's slight echoes of Bernie Madoff here in the United States, a fund product where the return seemed almost too good to be true. and turned out to be too good to be true. But in this case, the performance numbers we're talking about really sound too good to be true. Hundreds of percent returns. Didn't this look too fantastical to be real from the outset? Speaker 2 (3:11) Yeah, absolutely. Which is why everyone in the business knew it was too fantastical Speaker 1 (3:15) to be real. Speaker 2 (3:15) But if you're just a punter in an economy such as Turkey... And there's been very high inflation for the past three, four years. I mean, we're talking it's down to 30 % at the moment, and that's viewed as a triumph. So there's lots of instability. Plus, you've got macroeconomy in the dumps. Your pay packet is being eroded by inflation. And you're desperate to make ends meet. If you're a small guy or small woman, you get, oh, my God, 600 % return. That'll solve my rental bill, all my school fees, or whatever it is. So that's the kind of money that I understand has gone into this because what's noteworthy about this, although it's all been all over the press last week, the kind of