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SEC charges YieldStreet and its subsidiary for misleading investors

On Behalf of | Sep 22, 2023 | Financial News

The Securities and Exchange Commission has charged YieldStreet Inc. and its registered investment adviser subsidiary with misleading investors, Reuters reports.

The SEC said the New York-based company, which includes YieldStreet Management LLC, had failed to disclose critical information in a $14.5 million asset-backed securities offering. The firm was found to have violated certain antifraud and other provisions of the federal securities laws.

YieldStreet did not admit or deny the findings but consented to the entry of the SEC’s order.  The company will be required to pay over $1.9 million in penalties, disgorgement and interest.

The SEC found that in September 2019, YieldStreet offered securities to finance a loan a company affiliate made to a group of companies to transport a retired ship and arrange its deconstruction. The collateral for the loan was the ship to be broken apart and YieldStreet’s right to the ship was the most important security for the loan and the securities that it sold to investors.

The SEC alleges that YieldStreet failed to disclose to investors a heightened risk that it would be unable to seize the ship in the event of a default.  Prior to the offering, YieldStreet personnel allegedly had information showing that ships securing other loans that firm 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.

But according to the SEC’s order, YieldStreet went ahead with the offering without disclosing this material information to investors, and the firm later concluded that the borrowing group caused the ship securing the September 2019 offering to be deconstructed. The borrowers were found to have stole the deconstruction proceeds by not repaying the loan from YieldStreet, thus leaving investors facing millions of dollars of losses.

“YieldStreet aims to unlock the complex alternative investments market for retail investors but failed to disclose glaring red flags it had about the security of the collateral backing this offering,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “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.”

Along with the financial penalties, YieldStreet will be required to cease and desist from further violations of the federal securities laws.

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