Yieldstreet settles marine loan dispute with the SEC
US-based peer-to-peer lending platform YieldStreet has settled a dispute with the Securities and Exchange Commission (SEC) regarding the risk disclosures on marine loans.
The issue dates back to September 2019, when the SEC claimed that YieldStreet allowed investors to finance loans with an overall value of $14.5m (£11.6m) secured against ships, without disclosing key risk information.
YieldStreet has now settled the charges without admitting or denying the charges, paying a $1.9m penalty.
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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,” Nawaz added.
In September 2019, YieldStreet listed 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 held “heightened risk” due to the difficulty involved in repossessing the asset.
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The SEC also claimed that prior to listing that loan, YieldStreet had information showing that ships which were being used as security on other loans had been reported as deconstructed without any notice or repayment, or could not be located because their tracking systems were off.
However, the P2P lender did not disclose any of these details to potential investors.
In 2020, YieldStreet claimed that the platform was the victim of an “immense global fraud scheme” perpetrated by the borrowers, the Lakhanis. The company added that it uncovered the scheme long before anyone else, and immediately alerted the authorities.
“We have done nothing wrong,” YieldStreet added.
“Significantly, the Lakhanis have defrauded not only YieldStreet, but also at least five other leading private equity firms and financial institutions.
“We are all victims of the Lakhanis.”
Since the alleged fraud took place, YieldStreet has ceased to offer marine deconstruction loans and has voluntarily undertaken extensive litigation efforts to recover the funds for investors.
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