Türkiye’s fund collapse is a supervision failure, not only a fraud case

Türkiye has turned the collapse of 131 investment funds into a criminal case at speed. Within two weeks of the first failed redemptions, prosecutors had issued warrants for 217 suspects, a deputy chair of the ruling party had resigned and the president had set up a coordination board under his vice president. That response may contain the damage. It does not answer the question investors will ask: how funds with implausible returns and a handful of illiquid holdings grew to nearly half a million savers while the regulator watched.

How the run happened

According to Daily Sabah, the trouble began when the Capital Markets Board (SPK) changed its guidelines so that funds could no longer put all their assets into a single stock. The columnist Arda Tunca, writing for AGBI, dates the rule tightening to August. Funds started selling to comply, investors began to redeem, and on 16 September Tera Portföy said it could not meet some withdrawals from two funds; Pusula Portföy followed with similar problems. Balkan Insight reports that trading on Borsa Istanbul was halted that day after the BIST 100 fell by more than 6 per cent and triggered a market-wide circuit breaker. Nikkei Asia, carrying Reuters, put the index about 8 per cent lower on the week, its worst weekly performance since March 2025.

The SPK ordered all 131 funds, managed by seven portfolio companies, into liquidation on 17 September. Işbank was appointed for the Tera funds and state-owned Ziraat Bank for the rest. The SPK now puts the funds’ assets at about 826bn lira and the number of investors at 455,758. Other figures circulated as the crisis unfolded: Reuters initially cited about $21.4bn and 353,000 investors, while CNBC-e reported $19.8bn and more than 514,000. Finance Minister Mehmet Şimşek used $18.3bn; Middle East Eye uses $17bn. The spread itself says something about how poorly the funds’ true value was understood.

What the funds were doing

The allegation is straightforward. Funds concentrated their money in thinly traded shares with low free floats, pushed up prices, reported spectacular returns and drew in new money that kept the buying going. Middle East Eye reports that one Tera fund returned more than 1,500 per cent over a year. At one point Tera’s brokerage reportedly controlled 95 per cent of the shares of Özata Denizcilik, a shipbuilder whose valuation rose to $5bn, above that of Ford Otosan. Justice Minister Akın Gürlek has said prosecutors are pursuing allegations that “Ponzi-like” methods were used. Tera and the other firms deny wrongdoing.

The signals were public. AGBI notes that MSCI warned in June about possible coordinated trading in fund holdings linked to smaller listed companies, and that index providers had questioned Turkish free-float data. The SPK’s own explanation of its new rules, quoted by Balkan Insight, was that some funds had “caused price movements that cannot be explained by the financial realities of companies”. That is an accurate description of a problem that had been building for some time before the regulator acted.

A political crisis as well as a market one

The case has reached the ruling Justice and Development Party (AKP). Fatma Betül Sayan Kaya, an AKP deputy chair and former family minister, resigned her party posts on 26 September after allegations about share trades by her and her husband in Özata Denizcilik before the sell-off; she has not commented on the specifics. Middle East Eye reports that Tera’s chairman, Emre Tezmen, sat on the board of the Central Securities Depository, the institution that records and safeguards Turkish securities, until his arrest, and that one of President Recep Tayyip Erdoğan’s chief advisers sat on the board of Tera Portfolio Management until January 2026. Daily Sabah, citing media reports, says a former deputy governor of the central bank is among those arrested.

Erdoğan has said that no one can stain the AKP and that the party will part ways with those who did wrong. He has activated the State Supervisory Council to examine fund transactions, and on 29 September the presidency set up a Fund Coordination Board under Vice President Cevdet Yılmaz. The opposition has called for his resignation.

The enforcement effort has also been erratic. On the Friday before Borsa Istanbul reopened, the justice minister froze the assets of 46 legal entities, 18 funds and 42 individuals, including large listed companies such as Astor Enerji. Fearing disruption when the market reopened, the authorities reversed the order on the Sunday. The index still fell 2.38 per cent on 28 September. Courts have meanwhile blocked access to 246 social media accounts accused of spreading panic, according to Balkan Insight; AGBI later counted 194 X accounts, including those of economists and journalists, and dozens of news reports.

Containment and its limits

Ankara’s case that the damage is contained is not weak. Şimşek says 90 per cent of the fund market continued to function, and the central bank provided liquidity. On 1 October the SPK approved interim payments of up to 1m lira, about $20,400, per eligible investor in the Tera, Pusula, Atlas and Hedef funds, starting with money market funds. It also opened “voluntary return accounts” for those willing to hand back excessive profits taken before liquidation. The liquidation deadline has been extended from three to six months.

But interim payments are advances against an unknown final value. The funds’ marked prices reflected the inflated shares they held, and those shares must now be sold into a nervous market. Most investors are unlikely to recover the gains shown on their statements. According to dpa, many were small savers who had moved into equities to protect themselves against inflation; Middle East Eye reports that many are believed to be ruling-party voters.

What would restore confidence

The AKP is reportedly considering limits on the combined holdings of funds run by the same manager in a single stock, stress-test thresholds and early-warning systems, according to Hürriyet Daily News. These are sensible, and some will need legislation. Parliament, which reopened on 1 October, may set up an inquiry commission if the governing alliance agrees.

The harder reforms concern the supervisors themselves. Three questions matter most to outside investors:

• Why concentrated positions in illiquid shares were not flagged and capped before they reached half a million retail holders, despite public warnings in June.
• How senior figures in the market’s infrastructure and in politics came to sit on the boards of the firms involved, and what conflict-of-interest rules will change.
• Whether the investigation will be seen as independent, given the concerns about the courts that AGBI and others raise, and given that the authorities are restricting commentary on the case.

Arrests show that the state can act after a collapse. Türkiye’s capital markets will be judged on whether the next set of rules lets supervisors act before one.

Sources

• Balkan Insight — Turkey Arrests Fund Managers Over Stock Market Manipulation Scandal
• Nikkei Asia (Reuters) — Turkey moves to calm nervous markets after fund crisis sparks selloff
• Daily Sabah — Arrests in Türkiye investment fund probe reach 45
• Middle East Eye — Turkey’s $17bn fund scandal becomes a political crisis for Erdogan
• Hürriyet Daily News — Erdoğan says his AKP will not be tarnished by fund scandal
• Hispanatolia — Investment fund fraud in Turkey: Erdogan announces measures
• Yahoo Finance (dpa) — Turkey widens fund scandal probe, over 200 suspects investigated
• Hürriyet Daily News — Türkiye’s capital markets regulator approves interim payments to investors in funds under liquidation
• Hürriyet Daily News — Turkish parliament begins new legislative year
• AGBI — Turkey’s fund crisis goes beyond Borsa Istanbul