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Linqto, the US-based private equity investment platform that offered a pioneering private market opportunity for small investors, is now both on the brink of bankruptcy and the target of federal investigations.
The developments following the aggressive sales campaign called “Spike Day” launched by the company's former CEO William Sarris in January 2023 left investors faced with a major scandal.
According to emails obtained by the Wall Street Journal, Sarris pressured employees to sell Ripple shares to investors at a price at least 60% above Linqto’s purchase price. This information was not shared with customers, despite the SEC generally prohibiting price increases of more than 10%, and Linqto made $2 million from these trades. An independent law firm’s review found that these trades could be considered securities fraud.
Even more concerning are the results of an internal investigation, which found that Linqto users never directly owned the shares they thought they owned, and that some investors were not legally eligible to participate in such investments. These findings, combined with statements from new management that Linqto would restructure under bankruptcy protection, have made the company’s future even more uncertain.
The company is estimated to have around $500 million in client funds under management. Linqto launched on the promise of providing access to private tech companies like SpaceX and Anthropic for investors who wanted to avoid the tight regulation of public markets. But the company has attracted attention with its aggressive “guerrilla marketing” tactics, trying to boost sales by triggering investors’ “fear of missing out” (FOMO) with social media posts and exaggerated email campaigns.
Ripple CEO Brad Garlinghouse also made a statement on the subject, stating that Ripple has no official business relationship with Linqto, and that Linqto only purchased 4.7 million Ripple shares from the secondary market. Garlinghouse said, “I cannot give any assurance on this matter,” regarding the situation where investors think they are buying Ripple shares but actually have “representative units” sold by Linqto. It was also shared that Ripple’s relationship with Linqto will end completely at the end of 2024.
Although the financial impact of the scandal on investors is not yet clear, it is predicted that Ripple shares have gained significant value over time and therefore some people who invested indirectly through Linqto may still be making a profit. However, uncertainties regarding the company's legal process and investors' rights continue.
*This is not investment advice.