Linqto, a U.S.-based private investment platform known for enabling retail investor access to pre-IPO shares, has initiated Chapter 11 bankruptcy proceedings. This filing, made in the U.S. District Court for the Southern District of Texas, comes amidst escalating federal investigations and allegations of securities law violations, underscoring significant challenges within a segment of the private equity market. While the firm’s investment vehicle, LiquidShares, reportedly holds over $500 million in securities across 111 companies—including 4.7 million shares of blockchain payments firm Ripple—these developments raise critical questions regarding investor protection and regulatory oversight in less liquid asset classes.
- Linqto initiated Chapter 11 bankruptcy in the U.S. District Court for the Southern District of Texas.
- The company faces federal investigations by the SEC and DOJ over alleged securities law violations, including marketing to ineligible investors and exceeding markup caps.
- Linqto ceased its platform operations on March 13, halting all revenue-generating activities.
- It holds 4.7 million Ripple shares, valued up to $450 million, despite Ripple asserting no direct business relationship.
- Linqto is seeking up to $60 million in debtor-in-possession financing from Sandton Capital Partners for restructuring.
- Retail investors who purchased private shares through the platform are now likely to be treated as unsecured creditors.
The bankruptcy filing follows months of intensifying scrutiny from U.S. regulators concerning Linqto’s operational practices. Investigations have illuminated alleged infractions, including the marketing of private equity investments to ineligible retail investors and failures in properly transferring security titles to customers. A particularly salient accusation involves the sale of Ripple shares at markups significantly exceeding the 10% cap permitted by the U.S. Securities and Exchange Commission (SEC). In one notable instance, former CEO William Sarris was reportedly involved in offering Ripple shares to Linqto’s approximately 11,000 platform users at prices more than 60% higher than the acquisition cost, an alleged violation of SEC regulations. The newly appointed CEO, Dan Siciliano, has publicly characterized many of the discovered prior business practices as “disturbing,” indicating systemic issues rather than isolated compliance failures.
Following these revelations, Linqto officially ceased its platform operations on March 13, effectively halting all revenue-generating activities. The company is currently under investigation by both the SEC and the Department of Justice, while the Financial Industry Regulatory Authority (FINRA) concluded a review of its affiliated broker-dealer arm, Linqto Capital, late last year. Further complicating matters, a former executive, Gene Zawrotny, has filed a lawsuit against Linqto and its former leadership, citing internal and systemic compliance deficiencies. This confluence of legal and financial pressures casts a considerable shadow over governance standards within the rapidly expanding, yet often less regulated, secondary private equity sector.
Ripple’s Stance and Market Impact
Amidst Linqto’s legal and financial turmoil, Ripple CEO Brad Garlinghouse swiftly clarified his company’s relationship with the distressed platform. Garlinghouse stated on X that Linqto had “no business relationship” with Ripple and had never participated in any of Ripple’s financing rounds. He emphasized that Linqto’s connection was solely as a shareholder. Despite this distinction, Linqto still holds 4.7 million Ripple shares, estimated to be worth up to $450 million on secondary markets, though their exact value remains subject to ongoing market dynamics and the bankruptcy process. This episode underscores the reputational challenges for prominent companies, particularly within the digital assets sector, when their names are associated, even indirectly, with entities facing significant legal and regulatory issues.
Restructuring Efforts and Investor Implications
The initial bankruptcy hearing for Linqto has commenced, with testimony anticipated from key restructuring figures including Chief Restructuring Officer Jeffrey Stein. Court filings indicate that Linqto improperly structured its securities vehicles and allegedly failed to secure necessary transfer permissions from issuers such as Ripple. In its bankruptcy filing, Linqto has sought up to $60 million in debtor-in-possession financing from Sandton Capital Partners to facilitate its restructuring efforts. However, retail investors who purchased private company shares through Linqto, often believing they held direct ownership, now face the complex prospect of becoming unsecured creditors in what is likely to be a protracted legal and financial restructuring process. The case highlights the inherent risks and lack of transparency that can characterize investments in illiquid, private markets, particularly when intermediaries encounter severe operational and legal challenges.
Oliver brings 12 years of experience turning intimidating financial figures into crystal-clear insights. He once identified a market swing by tracking a company’s suspiciously high stapler orders. When he’s off the clock, Oliver perfects his origami… because folding paper helps him spot market folds before they happen.