SEC Charges Alternative Investment Platform YieldStreet for Misleading Investors

The Securities and Exchange Commission (SEC) has announced a settled action involving New York-based YieldStreet Inc. and its registered investment adviser subsidiary, YieldStreet Management LLC (together referred to as YieldStreet). This action pertains to the failure to disclose critical information to investors in a $14.5 million asset-backed securities offering.

In September 2019, YieldStreet conducted an offering of securities to finance a loan provided by a YieldStreet affiliate to a group of companies for the transportation and deconstruction of a retired ship. The SEC’s order highlights that the ship being deconstructed served as collateral for the loan and was the primary security for both the loan and the securities sold to investors.

The SEC’s order states that YieldStreet neglected to inform investors about the elevated risk associated with its ability to seize the ship in case of default. Prior to the offering, YieldStreet had access to information indicating that ships securing other loans made by its affiliates to the same group of borrowers had been reported as deconstructed without notice or repayment, or they could not be located due to tracking system errors. Despite having this material information, YieldStreet proceeded with the offering without disclosing it to investors. Subsequently, it was determined that the borrowing group caused the ship securing the September 2019 offering to be deconstructed, and they 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 the importance of complete and accurate disclosures, even in the realm of alternative investments. YieldStreet, without admitting or denying the findings, consented to the SEC’s order, acknowledging violations of certain antifraud and other provisions of federal securities laws. As part of the settlement, YieldStreet is required to cease and desist from these violations and pay more than $1.9 million in penalties, disgorgement, and interest.