Long before Tera Group imploded, suspicious trading had begun to alarm executives, investors and regulators. In late winter, Tera's stock had surged 2,000%, making founder Emre Tezmen a billionaire with a private jet and luxury villa plans along Spain's Mediterranean coast. Behind the scenes, however, alarm bells were ringing. The firm had become all over social media, with Tezmen hyping it as the Goldman Sachs of Turkey, and cash from mesmerized retail investors forced it to take on ever-larger leverage to sustain its returns.
Transactions that were once small had grown so big that authorities could no longer ignore them, according to former company officials. Internal disputes grew so heated that in February, Tezmen's most trusted lieutenant, Emir Munir Sarpyener, got into a shouting match with other top executives, and punches were reportedly thrown. Some executives resigned rather than approve transactions they opposed.
Regulators at the stock exchange and markets regulator also saw the warning signs. Officials described a strategy built around creating massive paper gains, with funds buying illiquid stocks and borrowing to buy even more of the same shares. Exchange inspectors said they repeatedly flagged the unusual moves to superiors. Finance Minister Mehmet Simsek grew so concerned that in November he warned, "The market isn't a playground."
It took another 10 months and billions more in apparently engineered profits before the bubble burst. Tera's stock was nearly wiped out, hundreds of thousands of investors are seeking their money, and Tezmen and dozens of associates are in jail. The collapse triggered a financial market meltdown and a political crisis for President Recep Tayyip Erdogan. Murat Gulkan, CEO of OMG Capital Advisors, said many who raised concerns were silenced or threatened, pointing to a deeper failure in regulatory oversight. Tezmen faces charges of fraud and running a criminal organization, which he denies. Others have been accused of market manipulation and await trial.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing