SEC Charges YieldStreet for Misleading Investors in Asset-Backed Securities Offering

The U.S. Securities and Exchange Commission (SEC) has announced a settlement with YieldStreet Inc. and its registered investment adviser subsidiary, YieldStreet Management LLC, over allegations of failing to provide crucial information to investors in a $14.5 million asset-backed securities offering.

According to the SEC's order, in September 2019, YieldStreet conducted a securities offering to fund a loan extended by a YieldStreet affiliate to a group of companies for the purpose of transporting and deconstructing a retired ship. The SEC's investigation found that the ship being deconstructed served as collateral for the loan, making it the primary security for both the loan and the securities offered to investors.

Crucially, YieldStreet allegedly omitted informing investors about an elevated risk concerning its ability to take possession of the ship if a default occurred. The order asserts that YieldStreet's personnel possessed information before the offering that ships securing loans to the same borrowing group were either reported as deconstructed without any notice or repayment, or their whereabouts were unknown due to malfunctioning tracking systems. Despite this knowledge, YieldStreet proceeded with the offering without disclosing these material facts to investors.

The SEC's order also states that YieldStreet later determined that the borrowing group was responsible for deconstructing the ship securing the September 2019 offering. However, the group allegedly failed to repay the loan from YieldStreet, resulting in substantial losses for investors.

Osman Nawaz, Chief of the SEC Enforcement Division's Complex Financial Instruments Unit, emphasized that YieldStreet's failure to disclose crucial information related to collateral security risks was a significant oversight. Nawaz affirmed the SEC's commitment to ensuring that investors, even in alternative asset classes, receive complete and accurate disclosures regarding their investments.

As part of the settlement, YieldStreet neither admits nor denies the SEC's findings but consents to the entry of an SEC order indicating violations of certain antifraud and other provisions of federal securities laws. The order mandates that YieldStreet cease and desist from such violations and pay over $1.9 million in penalties, disgorgement, and interest.

The settlement underscores the SEC's vigilance in enforcing transparency and disclosure standards, particularly in alternative investment markets, to safeguard investors and maintain market integrity.