The Securities and Exchange Commission (SEC) says it has settled charges against Yieldstreet, a top alternative investment platform mainly serving accredited investors.
According to the SEC, Yieldstreet failed to disclose critical information pertaining to an asset-backed securities offering that totaled $14.5 million. Yieldstreet has settled the charges without admitting or denying the charges, paying a small $1.9 million penalty.
The SEC claims that in September 2019, Yieldstreet offered investors the ability to finance a loan for a group of companies that transport retired ships and arrange for their deconstruction and recycling. The SEC alleges that the collateral for the loan was a ship that inevitably was difficult to repossess, holding “heightened risk.”
The SEC claims that prior to the offering, YieldStreet personnel had information showing that ships securing other loans that YieldStreet affiliates had made to the same borrowing group were reported as deconstructed without any notice or repayment or could not be located because their tracking systems were off.
The SEC alleges that YieldStreet proceeded with the offering without disclosing this material information to investors. At a later date, the SEC claims that Yieldstreet concluded that the borrowing group caused the ship securing the September 2019 offering to be deconstructed, but it stole the deconstruction proceeds by not repaying the loan from YieldStreet, leaving investors facing losses.
Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, issued a statement claiming that Yieldstreet seeks to offer “complex alternative investments” for investors but failed to disclose “glaring red flags.:
“As this case shows, we are committed to ensuring that investors in any asset class, including ‘alternative’ asset classes, receive complete and accurate disclosures about those investments.”
It was originally reported in 202o that Yieldstreet was under investigation regarding loans linked to “ship breaking.” At that time, CI received a comment from a Yieldstreet representative who shared:
“[It is] important to note that we alerted the SEC when we discovered the immense global fraud scheme the Lakhanis [the borrowers] had perpetrated, just as we have notified other governmental jurisdictions across the globe. Keep in mind, in March, we uncovered this scheme – long before anyone else. We have done nothing wrong. Significantly, the Lakhanis have defrauded not only Yieldstreet, but also at least five other leading PE firms and financial institutions. We are all victims of the Lakhanis.”
The representative said they were in the process of seeking full restitution from the people who received the loans.
The SEC order notes that since the aforementioned fraud took place, Yieldstreet has ceased to offer marine deconstruction loans and has voluntarily undertaken extensive litigation efforts to recover the funds for investors.