A large-scale "pump and dump" scheme in Turkey, orchestrated by investment funds Tera and Pusula, has left retail investors facing substantial losses. These funds engaged in coordinated trading, buying each other's shares and those of small, illiquid companies to artificially inflate prices. This manipulation led to reported returns of 43,000% over three years, attracting approximately 43,000 retail investors. The Turkish justice minister has since labeled it a Ponzi scheme.
The bubble burst in August when regulators tightened rules, disrupting the scheme's operations. This was likely in response to warnings from MSCI about coordinated trading behavior and to avoid a potential downgrade of Turkey. Investors then requested $6 billion in redemptions from one of the funds, Pusula, which it could not meet, triggering a run on other funds.
In the aftermath, the central bank intervened by loosening loan collateral requirements to prevent forced selling by banks. Stop losses were implemented on the stock exchange, and two major banks were appointed to liquidate the affected funds. While these measures helped stabilize the immediate crisis, 131 funds with a notional value of $18 billion are still being managed.
The recovery for small investors is anticipated to be minimal, with current estimates suggesting only 20 cents on the dollar. The scheme's success in attracting investors was partly attributed to Turkey's high inflation environment, which saw rates of 30% at the time, making speculative investments appear more attractive despite their inherent risks.
