Welcome to the seventh edition of our monthly newsletter, with all the real estate crowdfunding gossip and scuttlebutt that’s fit to print.
Yieldstreet Launches 360 Managed Portfolios Amid Struggles
Yieldstreet recently announced the forthcoming launch of Yieldstreet 360 Managed Portfolios, which it called “the first automated solution for investing in private markets.” (That’s not really true — Groundfloor had a similar “Auto Investor” feature, just to name one example.)
Yieldstreet founder and CEO Michael Weisz had this to say about it: “Yieldstreet 360 marks a watershed moment for private markets. Just as ETFs and mutual funds revolutionised access to stocks and bonds by creating a simple and diversified solution, Yieldstreet 360 will do the same for private markets. Leading wealth management firms consistently recommend that high-net-worth individuals allocate 10-20% of their portfolios to alternatives.”
The new feature is currently labeled as “Coming Soon” on the Yieldstreet website. Since Yieldstreet is not doing so well right now, as we’ve repeatedly discussed, you might assume this is a last-ditch effort to revive investor interest in the platform. The company’s many scandals did a number on their reputation, a $6.2 million settlement in October did heavy damage to their bottom line, and they’re quickly losing ground to competitors like AcreTrader and EquityMultiple.
Will 360 Managed Portfolios ultimately save Yieldstreet? We’re not very optimistic about it, but keep an eye on this space.
CrowdStreet Faces New $1 Billion Class Action Lawsuit
There’s a new chapter in the ongoing Nightingale scandal — CrowdStreet just got hit with a brand new $1 billion class action lawsuit, which was filed on March 14th. The three plaintiffs — Vipul Shah, Dolph Haege, and Steve Wions, who were victims of the Nightingale fraud perpetrated via the CrowdStreet platform — believe their investments should be unwound and returned to them because the company defied securities laws. Specifically, they’re asking to rescind over $1 billion in investments made on CrowdStreet before 2023.
The three investors each lost a minimum of $25,000 after investing in Nightingale CEO Elie Schwartz's campaigns to purchase Atlanta Financial Center and recapitalize the Lincoln Place office building in Miami Beach. The lawsuit also names former CEO Tore Steen and former Chief Investment Officer Ian Formigle as defendants. The investors allege that these executives orchestrated a scheme to operate outside of regulated investment markets.
(Schwartz already pleaded guilty to fraud in February, and is scheduled for sentencing in federal court on May 19. He faces up to 20 years in prison.)
The central argument of the lawsuit is that CrowdStreet deliberately operated as a broker-dealer without a license, thus exposing investors to potential fraud. The plaintiffs’ attorneys claim that the platform hides the brokerage fees it charges sponsors using misleading terminology, like “technology” and “licensing fees.”
CrowdStreet’s current CEO, John Imbriglia, is none too pleased with the lawsuit, of course. “We believe plaintiffs’ claims are misguided and reflect a fundamental misunderstanding of CrowdStreet’s evolution since its founding in 2012,” Imbriglia wrote in an email to Bisnow. “Shortly, CrowdStreet will file its response to plaintiffs’ complaint, but litigation is an inherently slow process. We will not let it distract us from our goals and mission.”
Imbriglia also believes that CrowdStreet itself is a victim of Schwartz’s crimes, writing: “This lawsuit is the latest of such opportunistic actions. This is despite the fact that we uncovered Elie Schwartz’s fraud, alerted the SEC, and our ongoing support of the investigations led to Schwartz’s guilty plea, and the successful recovery of millions of dollars for affected investors to date.”
Joe Wojciechowski, one of the attorneys representing this class action lawsuit against CrowdStreet, isn’t buying it — he vehemently disagrees with Imbriglia’s framing of CrowdStreet as a fellow victim of Nightingale. “Fintech startups like CrowdStreet have this philosophical belief, almost this God-like complex, that they’ve created this wonderful, beautiful thing, and how can anything be wrong with this beautiful thing?” he said. “In that process, they tend to ignore things like registering a broker-dealer so that they can do what they’re doing legally.”
See You Next Month
Thanks for reading. Stay tuned for more gossip, slander, and scuttlebutt.