Ripple shareholder Linqto files for Chapter 11 bankruptcy

Linqto, a U.S.-based private investment platform and shareholder in crypto firm Ripple, filed for Chapter 11 bankruptcy on Monday following months of controversy, federal investigations, and mounting legal challenges over its handling of private equity offerings. The company, which enabled retail investors to purchase shares in pre-IPO companies like Ripple through series limited liability companies (LLCs), made its filing in the U.S. District Court for the Southern District of Texas. According to court documents, the firm’s investment vehicle, LiquidShares, holds securities valued at over $500 million across 111 companies, including 4.7 million Ripple shares. Ripple distances itself from embattled shareholder Ripple CEO Brad Garlinghouse quickly moved to distance the blockchain payments firm from the embattled platform, stating on social media last week that Linqto had “no business relationship” with Ripple and never participated in any of its financing rounds. “Apart from Linqto being a shareholder, Ripple has never had a business relationship with Linqto, nor have they participated in our financing rounds,” he posted on X. While Linqto still holds the Ripple shares, which may be worth as much as $450 million on secondary markets, the exact value remains uncertain. A company spokesperson declined to disclose when the shares were acquired, while Ripple did not respond to multiple requests for comment. SEC probes and alleged securities violations emerge The company’s collapse comes amid mounting scrutiny from U.S. regulators. According to The Wall Street Journal , internal reviews raised serious red flags. Linqto allegedly marketed private equity investments to ineligible retail investors, failed to properly transfer title of securities to customers, and sold Ripple shares to users at markup levels far above the 10% cap permitted by the Securities and Exchange Commission (SEC). In one reported case, former CEO William Sarris is said to have offered Ripple shares to Linqto’s 11,000 platform users at prices over 60% higher than the company paid — a clear violation of SEC rules. “These practices aren’t small one-off compliance issues or common regulatory missteps,” said newly appointed CEO Dan Siciliano. “Much of what we discovered about the prior business practices at Linqto is disturbing.” Platform shut down and legal fallout mount Linqto officially shuttered its platform on March 13, halting all revenue operations. The company is now under investigation by both the SEC and the Department of Justice, and the Financial Industry Regulatory Authority (FINRA) completed a review of its affiliated broker-dealer arm, Linqto Capital, late last year. A former executive, Gene Zawrotny, has also filed a lawsuit against Linqto and its former leadership, alleging internal and systemic compliance failures. The legal and financial fallout raises broader questions about governance standards in the booming but under-regulated world of secondary private equity. First bankruptcy hearing set with restructuring underway The first bankruptcy hearing is scheduled for today, Tuesday. Testimony is expected from Chief Restructuring Officer Jeffrey Stein, corporate restructuring analyst Kate Mailloux of Epiq, and Jefferies debt advisory executive Ryan Hamilton. Court filings allege that Linqto improperly structured its securities vehicles and failed to obtain transfer permissions from issuers like Ripple . In its bankruptcy filing, Linqto noted that it is seeking up to $60 million in debtor-in-possession financing from Sandton Capital Partners to support restructuring efforts. Yet investors, many of whom believed they held direct ownership of private company shares, now face the prospect of becoming unsecured creditors in a drawn-out process. The Ripple connection continues to attract attention due to the firm’s high profile in the digital assets sector. Although Linqto’s troubles are its own, the episode highlights the reputational risks for prominent companies when their names are tied, even indirectly, to controversial third-party entities. Your crypto news deserves attention – KEY Difference Wire puts you on 250+ top sites

Source: Cryptopolitan