(HedgeCo.Net) The Securities and Exchange Commission has announced a settled action against New York-based YieldStreet Inc. and its registered investment adviser subsidiary, YieldStreet Management LLC (together, YieldStreet), for failing to disclose critical information to investors in a $14.5 million asset-backed securities offering.
According to the SEC’s order, in September 2019, YieldStreet offered securities to finance a loan a YieldStreet affiliate made to a group of companies to transport a retired ship and arrange its deconstruction. The SEC’s order finds that the collateral for the loan was the ship to be deconstructed and that YieldStreet’s right to the ship was the most important security for the loan and the securities that YieldStreet sold to investors.
According to the order, YieldStreet failed to disclose to investors a heightened risk that it would be unable to seize the ship in the event of a default. The order finds 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. According to the order, YieldStreet proceeded with the offering without disclosing this material information to investors. The order states that YieldStreet later 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 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.”
Without admitting or denying the findings, YieldStreet consented to the entry of an SEC order finding that they violated certain antifraud and other provisions of the federal securities laws. The SEC’s order requires YieldStreet to cease and desist from these violations and to pay more than $1.9 million in penalties, disgorgement, and interest.