Yieldstreet, a prominent alternative investment platform catering to accredited investors, has reached a settlement with the Securities and Exchange Commission (SEC) following charges of failure to disclose critical information related to a $14.5 million asset-backed securities offering. Although Yieldstreet did not admit to any wrongdoing, it has agreed to pay a penalty of $1.9 million.
The SEC alleges that in September 2019, Yieldstreet offered investors the opportunity to finance a loan for a group of companies involved in the transportation and deconstruction of retired ships. The collateral for the loan was a ship with a high risk of repossession difficulty, a fact that Yieldstreet failed to disclose to investors.
Before the offering, Yieldstreet personnel had access to information indicating that ships securing loans made by Yieldstreet affiliates to the same borrowing group had been deconstructed without repayment or could not be located due to tracking system errors. Despite this knowledge, Yieldstreet proceeded with the offering without informing investors about these material risks.
At a later date, Yieldstreet determined that the borrowing group had indeed caused the ship securing the September 2019 offering to be deconstructed, thereby leaving investors to face losses as the loan was not repaid. The SEC claims that Yieldstreet failed to disclose this information to investors.
Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, emphasized the commitment to ensuring proper disclosures for investors in all asset classes, including alternative investments. Nawaz stated that Yieldstreet had neglected to address “glaring red flags” in their offering.
In 2020, it was reported that Yieldstreet was under investigation due to loans associated with “ship breaking.” A representative from Yieldstreet stated that they had alerted the SEC upon discovering the large-scale fraud scheme perpetrated by the borrowers. The representative claimed that Yieldstreet, along with other leading private equity firms and financial institutions, had fallen victim to the fraud. Yieldstreet asserted its innocence and expressed its intention to seek full restitution from those who received the loans.
In response to the alleged fraud, Yieldstreet has ceased offering marine deconstruction loans and has actively pursued legal action to recover the funds for investors. The SEC order acknowledged these efforts undertaken by Yieldstreet after the fraud came to light.
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