Bankrupt fintech startup Linqto has won court permission to sell stakes in private companies so that it can fund its bankruptcy case.
At the time of writing, Linqto did not mention which securities it plans to try to liquidate; however, the company stated that they would come from a portfolio worth over USD 500 million. Linqto acquired the stakes for itself and its customers before it shut down and filed for bankruptcy while being under investigation by federal regulators.
Linqto’s collapse
Linqto’s bankruptcy underlines the risks to retail investors of acquiring stakes in illiquid and hard-to-value assets. The current announcement follows President Donald Trump’s decision to sign an executive order that is set to simplify how 401(k) participants invest in private markets.
Starting to provide private investments in 2020, Linqto came as part of a multitude of financial companies that aimed to make private markets more accessible. The firm’s offerings, including stakes in crypto company Ripple and AI firm CoreWeave, attracted individuals focused on private markets.
Currently, the US Securities and Exchange Commission (SEC) is investigating Linqto to determine whether former company managers failed to verify that some of its customers were accredited investors with sufficient financial backing to invest through the company. When it was operational, Linqto told its customers, who were approximately 13,600, that they could acquire stakes in some of the trendiest private companies before these companies went public. Typically, this was only available to large institutions. According to Linqto’s bankruptcy attorney, this turned out to be wrong, as, in reality, the securities could not be transferred directly to consumers.
Furthermore, the bankruptcy case will see Linqto’s new managers avoiding an expensive court fight over who has title to the securities, which is a difficult matter linked to federal rules for accredited investors, as stated by the attorney during a court hearing. Now, no sale would be finalised until customers can claim ownership of any of the securities, according to court documents.
