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(Bloomberg) — On Christian Wehr’s first investor road trip to Russia, he brought his dad along for moral support.

It was December 2022, 10 months after Russia had attacked Ukraine, and friends had warned the 32-year-old software developer not to travel from his native Germany, designated an “unfriendly country” by the Kremlin.

But Wehr saw it as the only way to save his bet on Russian stocks from complete wipe-out.

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He’s one of an estimated 100,000 European retail investors with money tied up in special accounts in Russia that hold in excess of $16 billion. Some, like Wehr, bought before the invasion; others saw a once-in-a-lifetime opportunity when it crashed Russian markets and sent Wall Street giants running for the exit: buy Moscow-listed companies on the cheap, hold until the war ends, and sell for a tidy profit.

The trade has created a windfall that – on paper – turned some into millionaires, according to bank statements and 10 investors interviewed by Bloomberg. But it’s out of reach as long as sanctions and Russian countermeasures are in place, and simply keeping hope alive has become a costly bureaucratic struggle.

The investors’ predicament won’t draw sympathy among their political leaders, who’ve sought to present a united front against Moscow’s invasion. Asked about the ethics of buying Russian companies during the conflict, all of them conceded they misread the Kremlin. They expected Ukraine to avert or quickly win the war, locking in a quick profit as markets corrected.

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But many are in it for the long haul, drawn by what they saw as undervalued, profitable firms offering high dividends. Some drew parallels with Europe continuing to consume Russian gas, or oil traders profiting from the same geopolitical turmoil.

Wehr’s destination was a branch of Gazprombank JSC in the Russian exclave of Kaliningrad, just north of Poland. He needed a so-called type-C account with the Russian lender to hold his stocks including energy producer Lukoil PJSC, steelmaker NLMK PJSC and telecommunications firm Mobile TeleSystems PJSC. 

The accounts were created on President Vladimir Putin’s order following sanctions to store the assets of investors from “unfriendly” countries, including large institutional players as well as individuals. While the exact amount held there isn’t public, Russian officials have said it’s comparable to the value of Russian assets frozen by the west.

Navigating Borders

As Wehr approached the border, he got nervous. Traffic thinned out until the few cars left on the road were those coming the opposite direction – out of Russia. 

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He carried on, guided in large part by a close-knit digital community of other Russia stock bulls that he’d found on Telegram and Discord. “Without this group I would not have traveled to Russia,” he said.

The power of this virtual community is emblematic of how retail investors have emerged as a force in markets across the globe. The under-40 segment has more than tripled over the past decade, according to research from JPMorgan Chase & Co. Their growing weight and often contrarian risk appetite have driven meme-stock booms around companies like GameStop Corp. – often to Wall Street’s frustration and with few checks on risks and volatility endemic to trading.

On one Discord server dedicated to Russian equities, users share tips on everything from how to interpret financial legislation to meme-peppered political views on the war. Some are explicitly pro-Russian; others say they support Ukraine. Their stated professions range from engineering to screenwriting, and nationalities span the globe.

All of those interviewed by Bloomberg were men, and most of them communicated on condition of anonymity. While there’s nothing to indicate their trades ran afoul of sanctions rules, they feared reputational damage if their Russia investments became public.

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They had initial portfolios ranging from around $11,000 to $550,000, according to the statements seen by Bloomberg. Wehr declined to provide details on the size of his position.

Bloomberg verified the contact information and unique ID numbers of securities mentioned in the statements. Most of the banks and brokers they belonged to – Freedom Finance, Charles Schwab and ViTrade – didn’t respond to requests to confirm details of anonymized copies of the documents. ABN Amro Bank NV and Consorsbank said they were consistent with their usual formats and confirmed they had previously offered the securities shown. Interactive Brokers said “as a matter of policy, we cannot comment on client activity.”

The retail buyers’ investment of choice were depositary receipts – securities that represent a country’s equities but are traded abroad — an instrument conceived a century ago that ballooned into a $4.14 trillion global market by 2022. Russia was the world’s sixth-biggest issuer, with Wall Street heavyweights like JPMorgan and Citigroup arranging them for partner companies in Moscow.

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The money flowed freely while peace held, and even as some Russian entities and individuals were sanctioned for the 2014 annexation of Crimea. Anyone with an internet connection and a brokerage app could buy them. So when stock prices tanked after the full-scale invasion of Ukraine, the retail crowd did just that. 

‘Best-of-Breed’

Greg Sorter, a US citizen, says he knew the risks, having previously been burned by the collapse of Russia’s Yukos Oil Co., but the potential upside was too big to ignore.

“These are best-of-breed companies that aren’t going anywhere,” says Sorter, 59, of his portfolio of Surgutneftegas PJSC, Sberbank PJSC and Lukoil, all bought on the day of the invasion.

As western governments sought to curb Russia’s access to global financial markets, the connections that depositary receipts depend on began to break. By March 2022, western exchanges suspended operations with Russian securities, pushing trading into over-the-counter markets. 

Shortly after, the Kremlin ordered the receipts to be converted into local shares in a bid to push out foreign investors. Wehr was among the roughly 25% that German private investor association SdK estimates were able to convert. 

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“Some banks still refuse to cooperate, citing possible sanctions,” said Magali Kolleck-Feser, attorney at law at Germany’s Goldenstein Energy Law Firm, who says she’s received thousands of queries from retail investors about the process.

Now they’re up against the clock, with the US Treasury setting an Oct. 12 deadline for the conversion of Russian receipts. 

The main obstacle was a fee that Russia’s National Settlement Depository charged to process conversions, payment of which would breach EU and US sanctions. So last December, the NSD — as the Russian equivalent of Euroclear is known — waived it, but some brokers and banks were still wary.

This year, Russia appointed a broker to conduct swaps of frozen assets between Russian and foreign investors. But after the EU banned its citizens in July from taking part in the program, it’s fallen short of expectations, securing less than $90 million in purchases from foreigners as of August.

‘In the Middle’

“The investors are really stuck in the middle,” SdK board member Marc Liebscher said by phone. “The bottom line is retail investors are being accepted as collateral damage of EU sanctions against Russia.”

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It’s a tension that the EU’s markets watchdog has recognized, calling for the impact of sanctions to be balanced against EU citizens’ rights and linking it to broader “trust into the EU system of investing.”

The cost of the conversion, including legal fees, translations and travel costs, can run into tens of thousands of dollars. Some investors whose brokers or banks didn’t allow them to convert are now banding together in a bid to force their hand with potential legal action, citing the NSD fee waiver and EU assurances.

Wouter, a Dutch citizen who asked to be identified by his first name, launched an association to represent such cases and share information among affected members. “Unfortunately, the legal option is the only way,” he said by phone. 

—With assistance from Bailey Lipschultz.

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