For the second time in just over a year, YieldStreet, a digital alternative investment platform, has agreed to pay millions of dollars to clients who invested in ship-scrapping loans that are under water.
YieldStreet and a class action group of investors, who initially filed their complaint against the firm in 2020, agreed to a $6.2 million cash settlement, as well as waiving potential fees, according to a filing this week in federal court in Manhattan.
In September 2023, YieldStreet and the Securities and Exchange Commission reached a settlement of $1.9 million, with the company facing SEC allegations of failing to disclose critical information to investors in a $14.5 million asset-backed securities offering involving a ship that was to be taken apart.
The process of disassembling a ship and then selling parts for scrap or reuse is known as shipbreaking.
“In vessel deconstruction, the investors or funds buy old ships, and they’re eventually beached, cut up and sold for scrap,” said Jeff Sonn, one of the attorneys for the class action group. “YieldStreet raised money and some of the ships disappeared.”
“These are private investments and most clients invest $10,000 to $20,000, with some investing $100,000,” he said, adding that attorney Joe Peiffer also worked on the lawsuit.
A spokesperson for YieldStreet did not comment about this week’s class action settlement.
According to the court filing this week, investors in the class action suit contended that in early 2020, YieldStreet’s six outstanding maritime deconstruction offerings, which had been made to the same unidentified borrower, defaulted and caused YieldStreet investors approximately $87 million dollars in losses.
YieldStreet also sustained a $12 million dollar borrower default in its Louisiana Oil and Gas offering in 20192 , and by 2020, that borrower had filed for bankruptcy, according to the filing.
According to the SEC settlement from last year, 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, according to the SEC.
YieldStreet failed to disclose to investors a heightened risk that it would be unable to seize the ship in the event of a default, according to the SEC.
Prior to the offering, YieldStreet personnel 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, the SEC alleged.
But YieldStreet proceeded with the 2019 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 broken up, according to the SEC.
The borrowers stole the deconstruction proceeds by not repaying the loan from YieldStreet, leaving investors facing millions of dollars of losses, the SEC alleged.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.