Linqto Inc. Seeks Court Approval to Sell Private Equity Stakes

Linqto Inc., a fintech startup that recently declared bankruptcy, has obtained court approval to sell stakes in private companies valued at over $500 million. The company aims to use the proceeds to fund its bankruptcy proceedings. While Linqto has not disclosed which specific securities it intends to liquidate, its portfolio includes significant investments in high-profile firms.

The U.S. Securities and Exchange Commission is currently investigating Linqto to determine whether its former management failed to adequately verify the accreditation of its customers, which is a requirement for investing in certain private securities. This scrutiny follows Linqto’s abrupt shutdown and bankruptcy filing amid allegations of regulatory breaches.

Background and Implications for Investors

Founded in 2020, Linqto emerged as part of a trend aimed at democratizing access to private equity markets. It attracted approximately 13,600 customers by offering opportunities to invest in high-demand companies before they went public, a privilege typically reserved for institutional investors. Among its notable investments are a $399 million stake in crypto company Ripple, $35 million in Space Exploration Technologies Corp., and shares valued at $106.6 million in the publicly traded fintech firm Circle Internet Group Inc..

The recent executive order signed by President Trump, which aims to facilitate 401(k) investments in private markets, adds another layer of complexity to the current situation. This move highlights the potential for both significant gains and considerable losses associated with private equity investments. Linqto’s case illustrates the risks that retail investors face when engaging with illiquid and hard-to-value assets.

Legal Proceedings and Customer Rights

During a recent court hearing in Houston, Texas, Linqto’s bankruptcy attorney, Samuel A. Schwartz, noted the necessity of avoiding protracted legal disputes over the ownership of the securities. The complexities surrounding the transfer of these assets arise from federal regulations governing accredited investors, which pose technical challenges for direct transfers to customers.

It is important to note that any potential sale of securities will not be finalized until customers are given the opportunity to assert their claims to ownership. This stipulation aims to protect the interests of those who invested through Linqto.

The ongoing bankruptcy case, filed under Linqto Texas, LLC, 25-90186 in the U.S. Bankruptcy Court for the Southern District of Texas, will continue to unfold as the company seeks to navigate its financial obligations and satisfy creditor claims.

As Linqto attempts to liquidate its assets, the case serves as a cautionary tale for investors drawn to the allure of private markets, emphasizing the need for thorough due diligence and understanding of the risks involved.