The ambitious goal of Linqto to broaden access to pre-IPO investments, particularly in promising companies like Ripple, is rapidly disintegrating amidst investigations by federal authorities, impending bankruptcy, and a frustrated community of around 13,000 investors.

Recent findings reported by The Wall Street Journal reveal that the Securities and Exchange Commission (SEC) and the U.S. Department of Justice are delving into serious accusations against former CEO William Sarris. Allegations include overpricing Ripple shares by over 60%, unauthorized sales of customer stock, and marketing to investors who did not meet the accredited investor criteria. Current management has acknowledged that account freezes have been in effect since February, with an impending Chapter 11 filing that may classify numerous investors as unsecured creditors.

A statement released on March 14 outlines the organization’s acknowledgment of widespread violations of securities laws, the suspension of all trading activities, and significant layoffs affecting nearly 50% of employees while Linqto considers “all options to preserve value,” including a potential court-managed restructuring. Moreover, they assured that the special-purpose vehicles (SPVs) holding customer assets are still active within issuer cap tables, although a forensic review is underway to validate this assertion.

In the meantime, attorney John E. Deaton has stepped in, labeling the situation as tumultuous, and noting that about 11,500 Linqto investors purchased shares through SPVs meant to represent Ripple equity. He highlighted that a significant number of these investors—up to 5,000—are non-accredited, thus raising compliance issues that the SEC is now closely monitoring. Deaton has organized a live session to provide insights into this complex enforcement situation, emphasizing that merely refunding initial investments could erode significant capital gains for many shareholders.

Understanding Ripple Ownership Issues

Ripple’s Chief Technology Officer, David Schwartz, known online as “JoelKatz,” intensified concerns by clarifying that the investors did not own Ripple shares in a traditional sense. He clarified, “What investors possess is a stake in a legal entity that holds the actual shares.” He went on to explain that purchasing Z shares means owning a fraction of an entity that controls Y shares, confounding many investors who mistakenly believed they had direct ownership.

This revelation has critical implications, not just for the SEC investigation but for investors who now worry that their indirect holdings might become illiquid or subject to bankruptcy proceedings. Schwartz addressed the potential repercussions of Linqto’s financial instability on these SPVs, assuring investors that the legal entities owning their shares should remain unaffected by Linqto’s bankruptcy. However, he stated that operational disruptions could arise depending on how these entities are structured.

This uncertainty has led to escalating anxiety among investors. If financial managers or custodians linked to the SPVs are forced to make significant changes or liquidate assets, it could lead to a protracted period where investors find themselves in limbo regarding their assets, despite the shares still ostensibly existing within the cap table.

Misinformation and the Soros Connection

Further complicating the scenario, Schwartz tackled rumors connecting billionaire George Soros to Ripple. He clarified that Soros Fund Management had indeed invested in PolySign—another private investment that many Linqto users had ties to—during its acquisition of fund administrator MG Stover, yet he confirmed no connection exists with Ripple itself.

Initially, Schwartz expressed some surprise over the connection given Soros’ extensive investment portfolio but later reaffirmed that while Soros’ interests intersected with PolySign, no direct link to Ripple was evident.

The broader regulatory implications stem from Linqto’s establishment of over 500 SPVs, aimed at aggregating retail investor participation while staying beneath the 2,000-owner threshold required for public reporting. Internal communications revealed a high-pressure sales culture, where team leaders encouraged aggressive tactics, even repurchasing Ripple shares at inflated prices to later sell them back, raising further questions about the legitimacy of ownership within these SPVs.

The path forward depends on three critical timelines: Linqto’s restructuring plans, the SEC’s enforcement schedule, and the ability of SPV trustees to affirm rightful ownership of nearly $500 million worth of private company shares. Until these issues are resolved, many investors remain locked out of their accounts, watching anxiously as the future of their hoped-for Ripple equity hangs in the balance.

As of the latest updates, XRP is trading at $2.20.