20 Mar Defrauded Investors File $1B Class-Action Suit Against CrowdStreet
The suit, filed by three victims of the Nightingale Properties fraud perpetrated via the CrowdStreet platform, claims the Austin-based firm operated for years as an unregistered broker-dealer, selling and marketing securities and collecting fees without taking the proper steps to protect investors.
The investors are asking the District Court for the Western District of Texas to rescind more than $1B in investments made on the CrowdStreet platform before 2023. The suit also names former CrowdStreet CEO Tore Steen and former Chief Investment Officer Ian Formigle as defendants, claiming they were the architects of a scheme to operate outside of regulated investment markets.
CrowdStreet has orchestrated more than $4B of real estate investments on its platform, connecting sponsors buying or developing projects with online investors who for years were eager to capitalize on a booming commercial real estate market.
The company has been around for more than a decade but only offered deals under a broker-dealer license with the Financial Industry Regulatory Authority starting in 2023.
The prior year, Nightingale CEO Elie Schwartz used the CrowdStreet platform to defraud more than 800 investors who put $63M into two offerings. Schwartz pleaded guilty to fraud in February and is scheduled for sentencing in federal court on May 19, facing up to 20 years in prison.
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The suit was filed on March 14 by Vipul Shah, Dolph Haege and Steve Wions, investors from North Carolina, Illinois and Maryland, respectively, who each lost at least $25K when they invested in Schwartz’s campaigns to purchase the Atlanta Financial Center and recapitalize the Lincoln Place office building in Miami Beach.
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Both legal actions center around the same argument: CrowdStreet knowingly operated as a broker-dealer without a license, exposing investors to potential fraud. The attorneys claim the platform masks the brokerage fees it charges sponsors in terminology like technology and licensing fees.
“If it walks like a broker and talks like a broker, it is a broker,” Kons said. “And a commission is a commission.”
The class of potential victims is believed to be in the thousands. It includes anyone who purchased securities offered or displayed on the CrowdStreet platform before it was a registered broker-dealer, according to the complaint. Kons declined to say if there was a cut-off in how far back deals would be considered eligible for inclusion.
The attorneys allege that CrowdStreet violated the Texas Securities Act by not registering as a broker-dealer, that Steen and Formigle are personally liable as corporate control persons under the Texas Securities Act and that the fees the platform generated from its campaigns amount to unjust enrichment.
CrowdStreet has maintained that, prior to obtaining its broker-dealer license, it was strictly a neutral marketplace that didn’t promote or recommend investments and simply connected real estate investors to developers and sponsors. But the suit alleges it behaved like an investment bank — by helping sponsors raise money, CrowdStreet promoted deals, conducted due diligence and earned fees based on how much was ultimately raised in each deal.
The suit also includes a document that Bisnow first reported showing that CrowdStreet had plans to pursue a FINRA license as early as 2021. The attorneys argue that Steen, as CEO, and Formigle, who had been a licensed broker-dealer since 2002, should both have understood securities law and instead “made an affirmative decision to avoid said registration.”
“These were the architects, it was their vision,” Kons said. “At some point along the journey … if you’re operating as an unregistered broker-dealer, you don’t really see the light and elect to register unless you realize you need to. Somewhere along the way, something during their watch set them in motion to go ahead and register as a broker-dealer.”
Steen and Formigle didn’t respond to messages seeking comment through their new employers.
Steen was forced out as CEO in 2023. Formigle departed CrowdStreet earlier this year, and he has been followed by a wave of departures. Six other executives who were registered with CrowdStreet as broker-dealers have left the company in recent months, according to FINRA’s BrokerCheck.
The company has faced a growing pile of legal claims resulting from the Nightingale scandal. The New York-based real estate company used CrowdStreet to raise equity for three deals, all of which have been at the heart of investor litigation and criminal investigations.
The first campaign raised $25M for the purchase of a Chicago office tower called 200 W. Jackson. Earlier this month, 125 investors in that deal filed an arbitration claim against CrowdStreet, hoping to force the platform to cover $7.2M in losses, plus interest, fees and punitive damages after it allegedly ignored or failed to spot obvious red flags.
Most infamously, Schwartz drew $54M from investors in a bid to acquire the 915K SF Atlanta Financial Center office complex in Buckhead in a campaign that launched in May 2022, then raised roughly $9M a few months later to renovate and recapitalize a Miami Beach office building it already owned.
A FINRA-registered broker-dealer would be required to put the funds into escrow, but CrowdStreet deposited them directly into an account controlled by Nightingale, allowing Schwartz to misappropriate nearly all the money. It did the same thing for hundreds of previous campaigns — in 2021 alone, it raised $1.2B in deals.
Many investors Bisnow has spoken to in the years since claimed they never were told that their funds weren’t kept in escrow, a standard safeguard in a commercial real estate transaction.
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Full Story: BisNow March 18 2025
