-
Linqto, a prominent private investment platform and Ripple shareholder, has filed for Chapter 11 bankruptcy amid ongoing federal investigations and regulatory scrutiny.
-
The bankruptcy filing highlights significant compliance failures and raises questions about the valuation and ownership of Ripple shares held by Linqto on the secondary market.
-
According to COINOTAG sources, Linqto’s internal practices have been described as “disturbing,” with allegations of improper securities marketing and violations of SEC regulations.
Linqto’s Chapter 11 bankruptcy filing amid federal probes spotlights Ripple share ownership issues and regulatory compliance failures in private securities trading.
Linqto’s Bankruptcy Filing and Ripple Shareholdings Under Scrutiny
Linqto’s recent Chapter 11 bankruptcy filing in the US District Court for the Southern District of Texas marks a significant development in the private securities market, particularly concerning its holdings of Ripple shares. The company, which facilitates investments in pre-IPO companies, reportedly owns 4.7 million Ripple shares acquired on the secondary market. Despite this sizeable stake, Ripple CEO Brad Garlinghouse clarified that Linqto has no direct business relationship with Ripple, underscoring a clear separation between the two entities.
While Linqto has not disclosed the exact purchase dates or detailed valuations of these shares, secondary market data from Forge estimates the holdings to be worth approximately $450 million based on a share price of $95.5. However, court documents suggest that Linqto’s broader private securities portfolio, managed through its vehicle Liquidshares, holds assets valued at over $500 million across 111 companies, indicating a complex and substantial investment footprint.
Regulatory Challenges and Federal Investigations Impacting Linqto
The bankruptcy filing follows reports of federal investigations into Linqto’s business practices. The Wall Street Journal revealed that internal probes uncovered that many customers may not have legally owned the securities they believed they purchased. Additionally, Linqto allegedly marketed investment opportunities to individuals potentially ineligible to participate in private securities offerings, raising serious compliance concerns.
New CEO Dan Siciliano has publicly acknowledged the severity of these issues, describing them as more than mere regulatory oversights. Former CEO William Sarris is implicated in attempts to sell Ripple shares to Linqto’s user base at inflated prices, contravening SEC rules limiting markups to 10%. These revelations have intensified scrutiny from regulators, including the SEC and FINRA, further complicating Linqto’s operational viability.
Upcoming Bankruptcy Hearing and Legal Proceedings
The initial bankruptcy hearing scheduled for Tuesday will feature testimony from key restructuring and advisory personnel, including Jeffrey Stein, Kate Mailloux, and Ryan Hamilton. Court filings highlight Linqto’s failure to comply with securities laws, particularly regarding the improper structuring of its limited liability companies and unauthorized transfer of securities without issuer consent.
Since ceasing platform operations in mid-March, Linqto faces ongoing investigations by the SEC into potential violations by the company and its affiliates. These proceedings will be critical in determining the future of Linqto’s assets and its obligations to investors.
Ripple’s Strategic Disassociation from Linqto
Ripple has taken deliberate steps to distance itself from Linqto, halting approvals for secondary share purchases by Linqto in late 2024. This decision coincided with FINRA’s review of Linqto Capital, Linqto’s broker-dealer division, signaling regulatory pressures influencing Ripple’s stance. Additionally, internal disputes within Linqto have surfaced, with former executives filing lawsuits alleging compliance failures and retaliatory actions, further destabilizing the company’s leadership.
Despite circulating rumors about changes in Liquidshares’ Ripple holdings, Linqto has confirmed that its 4.7 million Ripple shares remain intact, a position corroborated by Ripple’s recent statements. This clarification aims to reassure stakeholders amid the uncertainty surrounding Linqto’s financial and legal status.
Conclusion
Linqto’s bankruptcy filing amid federal investigations underscores the complexities and risks inherent in private securities trading platforms, especially those dealing with high-profile crypto assets like Ripple. The unfolding legal processes will shed light on regulatory compliance issues and investor protections in this evolving market segment. Stakeholders should closely monitor developments as Linqto navigates restructuring and regulatory scrutiny, with broader implications for secondary market trading of private crypto shares.
