Crowdfunding platform YieldStreet reportedly under SEC and FBI examination over investments

YieldStreet President Michael Weisz on CNBCCNBC
  • Crowdfunding platform YieldStreet is under examination from the FBI and SEC over the firm's business dealings and sale of alternative assets, The Wall Street Journal reported Wednesday.
  • The company sells investments in loans collateralized by assets including artwork, real estate, legal agreements, and shipping vessels.
  • The regulatory agencies are focused on YieldStreet's sale of some $90 million in notes linked to loans for ship-breaking, according to The Journal. The business involves the stripping of old vessels for scrap metal.
  • YieldStreet told note-holders in March that roughly a dozen ships linked to the loans disappeared abroad, The Journal reported. Investors haven't received payments for their notes or any updates as to when such payments could arrive.
  • Visit the Business Insider homepage for more stories.
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The Securities and Exchange Commission and the Federal Bureau of Investigation are both looking into crowdfunding company YieldStreet and the unusual investments it offers customers, The Wall Street Journal reported Wednesday.

The SEC is probing YieldStreet and collecting information on its business dealings, sources familiar with the investigation told The Journal. The FBI is looking into the company's interactions with customers, including how it's touted some deals, according to the report.

YieldStreet sells investments in loans collateralized by artwork, mortgages, legal agreements, and shipping vessels, among other alternative assets. Accredited investors — those who either earn $200,000 a year or have a net worth of at least $1 million — can buy the securities and earn regular payments linked to the loans. The company surpassed a $1 billion valuation at the end of 2019.
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Both regulatory agencies are reportedly focused on YieldStreet's offering of $90 million in notes linked to loans for ship-breaking, the costly process of stripping old vessels for scrap metal. YieldStreet offered the notes starting in 2018.

The company told investors in March that roughly a dozen ships serving as collateral for the notes disappeared abroad, according to The Journal. Investors holding the related notes haven't yet received payments or a timeline for when they could see their cash returned.
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"We do not believe that we are the target of any investigation," YieldStreet said in a statement to Business Insider. "We want the same thing our investors do: to get the money back because our people including founders, the management team, board members, friends and family are also invested in these deals."

Read more: GOLDMAN SACHS: These 24 single-stock trades can help you make big returns in August as the pandemic creates a wildly unpredictable back-to-school season Court documents show the loan money went to companies tied to the Lakhani family, which holds a large stake in the ship-breaking industry. YieldStreet won a freeze on assets tied to the family in the UK, according to court filings, alleging they fraudulently sold ships. Separately, YieldStreet initiated legal proceedings that led to the seizure of another vessel in Malaysia.
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Muhammad Ali Lakhani, a member of the family, told The Journal they "strongly deny any allegations of fraud."

YieldStreet also sued Four Wood Capital Advisors, the firm that created the ship-breaking loans, alleging they failed to monitor the vessels as set out in their contract, according to The Journal.

Read more: Former hedge-fund titan Michael Novogratz breaks down 4 reasons why bitcoin is heading to $20,000 by year-end
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Alternative investing platforms gained new popularity in recent years as investors look to mint profits in assets other than stocks and bonds. Startups securitizing classic cars, paintings, and properties sprang up throughout the financial industry. Others, including YieldStreet, offer new access to assets previously left to institutions or the world's wealthiest investors.

Interest in the YieldStreet's offerings soared through 2020 as historically low interest rates left investors starved for yield. More than $1 billion has been invested into the platform and roughly $600 million has been returned to customers in principal and interest payments, according to the company's website.

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