Yieldstreet and its investment adviser affiliate Yieldstreet Management agreed to pay more than $1.9 million as part of a settlement with the Securities and Exchange Commission (SEC) addressing allegations the firm did not disclose heightened risks regarding a $14.5 million asset-backed securities offering.
Yieldstreet, which is based in New York, was fined $1 million, in addition to agreeing to pay nearly $900,000 in disgorgement and approximately $50,000 in prejudgment interest. The SEC said in its order the disgorgement total would be offset by about $600,000 related to actions the firm will undertake to forego collection of a fee receivable.
The details: In September 2019, Yieldstreet offered securities to finance the deconstruction of retired ships.
“[T]he collateral for the loan was the ship to be deconstructed and … YieldStreet’s right to the ship was the most important security for the loan and the securities that YieldStreet sold to investors,” the SEC said in a press release.
The agency found Yieldstreet did not inform investors of risks it faced should it be unable to seize the ship. The firm, from previous experience, knew certain ships might already have been deconstructed without notice or could not be located because of inoperable tracking systems, the SEC explained.
By proceeding with the offering without this disclosure, the firm jeopardized investors who stand to lose millions after it came to light the borrower Yieldstreet worked with had stolen the deconstruction proceeds for several ships, including the ship securing the loan, according to the SEC.
Compliance considerations: The SEC acknowledged Yieldstreet’s cooperation and remediation in the case. After discovering the actions of the borrower, the company stopped offering securities to finance marine deconstruction loans and undertook litigation efforts aimed at recovery for affected investors.
Company response: “We have reached an agreement with the SEC that concludes its review of the marine borrower fraud Yieldstreet brought to the attention of authorities three years ago,” a company spokesperson said in an emailed statement. “All settlement funds will be paid to Yieldstreet investors, and we continue to aggressively pursue recovery for our investors through ongoing litigation and collection efforts both here and abroad.”