Turkish Parliament passes fund liquidation law

Türkiye’s Parliament created a special legal framework for liquidating certain investment funds caught up in the scandal. It allows interim payments to investors and sets out how missing money, securities, property and other assets can be recovered. The law applies only to funds ordered into liquidation by the Capital Markets Board on September 17 that were not fully liquidated when the law was published.

For example, investors can receive interim payments based on their net investment amount. The law also lets authorities treat transfers as unlawful when they breached regulations or had no real economic purpose. Related-party loans, sales, collateral and similar transactions can be examined. Recovery accounts must keep each fund’s money separate and use it only for liquidation and investor payments.

The law is not a permanent regime for every investment fund. Payments depend on available cash, investor records, fund resources and procedures set by the Capital Markets Board. Authorities can pursue responsible companies and individuals, while the Investor Compensation Center distributes remaining money after liquidation.

To liquidate an investment fund is to close its operations and settle its financial position. The fund’s assets and claims are gathered, debts and necessary costs are addressed, and money is distributed to eligible investors. In this scandal, liquidation matters because several funds could not satisfy redemption demands, meaning investors could not obtain the money they requested by redeeming their units.

The process may include recovering assets unlawfully removed from a fund. Money and securities can be returned directly to a fund or a recovery account. Property such as real estate can be placed under the Savings Deposit Insurance Fund as trustee, which may sell or liquidate it. The proceeds are then reserved for the affected fund.

Liquidation does not guarantee full repayment. The law says remaining money goes to investors in proportion to their unit ownership after necessary costs. If payments are too small, amounts below the minimum set by the Capital Markets Board are carried forward until later distributions reach that threshold.

The scandal affected seven investment firms and 131 funds. Nearly half a million individual investors were affected after regulators ordered the firms managing those funds into liquidation. The figures show that the disruption was not limited to a small group of professional investors or a single fund.

The crisis began after several investment funds said they could not satisfy redemption demands. Prosecutors then opened an investigation into allegations of widespread market manipulation. The Justice Ministry reported that more than 80 people had been arrested in connection with the wider scandal.

The liquidation process has already produced some payments. A statement from the Fund Coordination Board said 84 funds had been settled, with TL 49.7 billion paid to 55,755 accounts. The law now sets rules for interim payments, asset recovery and later distributions for funds still covered by its provisions.

Interim payments are calculated using each investor’s net investment amount. The payment cannot exceed that amount when calculated without indexation. For funds other than money market funds, the total value of the investor’s units at the end of the previous day also sets a ceiling.

For example, an investor whose eligible net investment is below TL 1 million cannot receive the full maximum under this rule. An investor with a higher claim may still receive less if the fund does not have enough cash. If available cash cannot cover everyone’s calculated amounts, the Capital Markets Board may set a method designed to reach as many investors as possible.

Therefore, TL 1 million is an upper limit, not a promised payment. Actual payments depend on each investor’s calculation, the fund’s available resources and the procedures set by the Capital Markets Board. The law also does not promise that all losses will be covered.

The law targets money, securities, goods, rights and receivables unlawfully removed from fund assets. A transaction may qualify if it breached regulations or appeared lawful but had no real economic purpose for the fund. The rules cover loans, advances, collateral, transfers, sales, repo transactions and similar dealings.

The portfolio management company that founded or manages the fund is primarily liable. If it cannot repay the loss, or clearly cannot do so, people and legal entities named by the Capital Markets Board may be held personally liable. This can include those found to have acted with them. A person’s departure from office does not remove liability for actions taken while serving.

Authorities may seize assets under the Criminal Procedure Code. The Savings Deposit Insurance Fund can collect from responsible parties under rules for public receivables after the Capital Markets Board determines losses and liability. Treasury and Finance Minister Mehmet Şimşek also said people refusing to return improper profits would face legal proceedings.

The Capital Markets Board, or SPK, supervises the legal and financial decisions for each affected fund. It orders qualifying funds into liquidation, determines losses and responsible parties, sets payment procedures and notifies the Savings Deposit Insurance Fund. It also identifies the fund holders whose units qualify for distributions, using reconciled records with the Central Registry Agency.

The Savings Deposit Insurance Fund, or TMSF, handles recovery. It can collect from responsible people and companies, hold separate recovery accounts for each fund, and act as trustee for assets such as real estate. It may sell or liquidate those assets without waiting for the related case to finish. Each account is protected from other uses and public-debt seizures.

The Investor Compensation Center, or YTM, pays investors when liquidation has finished and recovered money remains. It distributes money in proportion to unit ownership. Amounts below the minimum payment set by the SPK are carried forward until later distributions reach that minimum.

Generally, an investment fund gathers money from investors and invests it in a portfolio of assets. Investors hold units representing their share of that portfolio. They usually redeem units by asking the fund to buy them back for cash, with the amount linked to the units’ value. The source article does not explain the ordinary structure in detail, but it describes the redemption problem that triggered the scandal.

Several funds said they could not satisfy redemption demands. That can happen when a fund does not have enough immediately available cash, when assets cannot be sold or transferred promptly, or when assets are frozen, disputed or unlawfully removed. In this case, regulators later placed seven firms managing 131 funds into liquidation.

The new law addresses the consequences rather than restoring normal operations. It allows interim payments, recovery of missing assets and separate accounts for recovered money. Fund holders will be identified by reconciling records with the Central Registry Agency. Payments will depend on net investment, available resources and official procedures.