30 Oct Yieldstreet Investors’ $9M Deal Over Risky Offerings OK’d
Law360 (October 29, 2024, 9:26 PM EDT) — A New York federal judge has given his preliminary blessing to a settlement worth up to $9 million resolving a class action by Yieldstreet investors who accused the online platform of offering “riskier-than-junk-bond investments” to the public that caused the plaintiffs to lose millions of dollars in defaulted loans.
In a 13-page order filed Monday, U.S. District Judge Victor Marrero of the Southern District of New York granted the investors’ unopposed motion for preliminary approval of a settlement filed last week. The plaintiffs’ initial lawsuit, filed in September 2020, alleged that Yieldstreet lied about its high-risk debt instruments and expertise in handling them, before losing over $125 million of their funds in defaulted loans.
“The court finds that settlement is likely to be approved because it was: (i) the result of serious, extensive arm’s-length and non-collusive negotiations; (ii) falling within a range of reasonableness warranting final approval; and (iii) has no obvious deficiencies; therefore warranting notice of the proposed settlement to the settlement class members and further consideration of the settlement at the settlement hearing described below,” Judge Marrero’s order said.
A settlement hearing is set for Feb. 21.
On Friday, the plaintiffs filed their unopposed motion for preliminary approval of the class action settlement, which sets up a $6.2 million cash fund and waives up to $2.75 million in fees.
“Under the terms of the settlement, defendants will pay $6,200,000.00 in cash, plus defendants will waive $2,750,000.00 in accrued fees against future collections/recoveries obtained for the certified offerings, and each settlement class member will retain their rights to their investments, including the right to recover from the multiple sources Yieldstreet is pursuing,” the Friday’s unopposed preliminary approval motion said.
Monday’s preliminary approval order brings the four-year-old litigation closer to its end. Since the lawsuit was first filed, amended versions followed throughout the proceedings.
The investors had alleged that both of Yieldstreet’s investment products — one of which was an oil and gas investment fund and the other a vessel deconstruction fund — were pitched via private placement memoranda that “included blatant misrepresentations about Yieldstreet’s past performance.”
The plaintiffs alleged that Yieldstreet never told prospective shareholders “that they were essentially guinea pigs whose heard-earned money was being managed by industry novices pioneering a lending model that Yieldstreet knew was doomed to fail.”
In May 2022, Judge Marrero refused to toss the case, finding that the defendants made certain misleading statements, including the statement that no product offered on its platform had suffered any principal loss.
Later that summer, the judge appointed Peiffer Wolf Carr Kane Conway & Wise LLP and Sonn Law Group to steer the litigation as class counsel.
On Aug. 9, the plaintiffs informed Judge Marrero that they reached had a settlement in principle with Yieldstreet.
In their Friday motion, the investors urged the judge to grant preliminary approval of the deal, noting that Yieldstreet maintained that the investors’ claims fail as a matter of law and that the company was a victim of a complex, sprawling fraud scheme by the borrowers in the marine deconstruction offerings, which form the basis of the lawsuit.
The investors added that Yieldstreet was also a victim of fraud by a borrower in what is referred to as the Louisiana Oil and Gas offering.
“Yieldstreet was not alone in being defrauded — other sophisticated large lenders were likewise defrauded by the same marine borrower, in the same scene, with respect to many of the same ships,” the motion for preliminary approval said.
Yieldstreet ended up securing a $6 million settlement from the borrower related to the oil and gas offering, according to Friday’s motion.
The defendants have also maintained that Yieldstreet acted in good faith throughout the marine offerings, and that its own top executives and founders poured in millions of dollars of their personal funds into the same offerings at issue involving the class, the investors said.
“Throughout, plaintiff vigorously disputed Yieldstreet’s defenses and contentions,” Friday’s motion said. “Nevertheless, plaintiff acknowledges the real possibility that, absent settlement, a jury could have been persuaded by Yieldstreet’s arguments and evidence.”
Class counsel also notified Judge Marrero that they plan to seek attorney fees worth a third of the cash fund of the settlement only and that nothing will be taken from the fee forgiveness portion of the deal.
Representatives for the parties did not immediately respond to inquiries seeking comment Tuesday.
The plaintiffs are represented by Jeffrey R. Sonn and Brian B. Pastor of Sonn Law Group PA and Joseph Peiffer and Daniel B. Centner of Peiffer Wolf Carr Kane Conway & Wise LLP.
Yieldstreet Inc. and its co-defendants are represented by Jonathan A. Shapiro, Robert M. Tiefenbrun and Melissa Lee Brumer of Goodwin Procter LLP and Brendan F. Quigley of Baker Botts LLP.
The case is Michael Tecku et al. v. Yieldstreet Inc. et al., case number 1:20-cv-07327, in the U.S. District Court for the Southern District of New York.
Source: Law360 October 29 2024
