The private investment firm Linqto recently filed for Chapter 11 bankruptcy. This move comes after months of federal investigations and growing legal trouble. Linqto faces serious accusations of bad practices. Meanwhile, Brad Garlinghouse, the head of Ripple, quickly denied any business ties with the struggling company.
Linqto was known for giving everyday investors access to shares of private companies, even famous ones like Ripple, before they went public. The bankruptcy filing landed in a Texas court earlier this week. It marked the endpoint of a stormy period for the firm.
The Ripple Connection
Linqto often marketed itself as a way for smaller investors to buy into big, private companies. They used special investment pools called LiquidShares. Linqto claimed a portfolio worth over $500 million. This included a hefty 4.7 million shares of Ripple.
But there was a big problem. Linqto was not clear about how it handled these shares. Details about when they bought the Ripple shares were missing. This raised many eyebrows. Linqto still holds these shares, which are now worth around $450 million. Yet, they refused to explain their purchase details.
Ripple Distances Itself
The CEO of Ripple, Brad Garlinghouse, spoke out publicly. He used social media to make one thing crystal clear. His company has no business connection with Linqto.
Garlinghouse stated on X, “Ripple has never had a commercial relationship with Linqto. We also never joined their funding rounds. Yes, we are a shareholder, but that’s it.”
This statement was a move to protect Ripple’s image. Ripple is a major player in the blockchain world. They gained much attention from their ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). That fight continues despite efforts to settle.
Claims of Deception and Rule Breaking
As for Linqto, a report from the Wall Street Journal laid out serious problems. The company allegedly offered private investments to people who weren’t allowed to buy them. They also reportedly failed to properly transfer stock titles. Even worse, Linqto supposedly sold Ripple shares at huge markups. These profits went way beyond the 10% limit set by the SEC.
One documented case showed the former CEO, William Sarris, offering Ripple shares to over 11,000 Linqto users. He allegedly charged prices up to 60% higher than what Linqto paid for them. The company’s new leadership calls these actions severe rule breaking.
Dan Siciliano, Linqto’s current CEO, commented, “What we found about Linqto’s past practices is troubling.”
Platform Closed, Investigations Mount
Linqto shut down its platform on March 13. All money-making operations stopped.
The company now faces ongoing investigations. Both the SEC and the U.S. Department of Justice (DOJ) are looking into Linqto. The Financial Industry Regulatory Authority (FINRA) has already finished its audit of Linqto Capital. This was Linqto’s branch that acted as a registered broker.
On top of this, Gene Zawrotny, a former executive at Linqto, sued the company. He claimed they failed to follow compliance rules.
The first bankruptcy hearing is set for this Tuesday. Key figures will testify. These include Jeffrey Stein, the chief restructuring officer; Kate Mailloux, an analyst from Epiq; and Ryan Hamilton, a debt advisor from Jefferies.
Court papers suggest Linqto set up its investment pools incorrectly. They also reportedly skipped getting necessary permits from companies like Ripple.
Linqto’s bankruptcy filing also revealed something else. They are looking for up to $60 million in “debtor-in-possession” financing. Sandton Capital Partners is ready to back this to help the company reorganize.
However, many small investors thought they owned private company shares directly. Now, they might be seen as simple unsecured creditors. This means they face a long and uncertain process to get any money back.
Ripple isn’t directly involved in Linqto’s problems. But this indirect link shows the risks for big crypto firms. Their names can get tied to troubled platforms, even if only loosely. This can hurt their reputation.
This case also highlights a big need. We need stronger rules for the growing private secondary market. Digital investments have opened doors for many. But the rules haven’t caught up to protect consumers.