Linqto Goes Bankrupt, SEC Investigates Ripple Shareholders’ Business
Linqto, a private investing firm and Ripple shareholder, has filed for Chapter 11 bankruptcy in the U.S., as regulatory pressure heightens and serious legal concerns loom. The allegations of improper handling of securities and violations of investor protection laws accompanied the action.
The bankruptcy was filed in the Southern District of Texas. This marks a serious change for Linqto, a firm that lets retail investors buy stakes in Ripple and other pre-IPO firms. Currently, Linqto holds 4.7 million Ripple shares. However, Brad Garlinghouse was quick to distance the crypto firm from the beleaguered firm.
Garlinghouse noted that Linqto was simply a shareholder and that Ripple had never had a business relationship with Linqto nor participated in any financing round.
Investigations and Irregularities Uncovered
The SEC, the Department of Justice, and other government agencies investigate Linqto’s business model. A report recently surfaced that stated that Linqto provided securities to ineligible persons along with an illegal transfer of ownership rights, leaving what customers owned unclear.
An internal memo apparently revealed further infractions like inflated pricing on Ripple shares. The shares were reportedly sold at a markup of more than 60%. This is much higher than the SEC benchmark rate of 10%. The new CEO, Dan Siciliano, found the findings “disturbing,” signaling broader issues rather than just mistakes.
“These aren’t minor compliance lapses,” Siciliano said. “The review has shown that these are structural…”
Platform Shutdown and Legal Fallout
Both the revenue-generating platform and the investment platform of Linqto shut down on March 13.
The firm faces lawsuits, including one from former exec Gene Zawrotny, who claims widespread compliance failures and retaliation from former bosses.
LiquidShares, Linqto’s investment arm, possesses more than $500 million worth of securities in 111 companies, including Ripple. But their legitimacy is disputed on the grounds of licensing and transference violations.
Ripple Remains Unaffected, But Investors Are Left Uncertain
Trading of Ripple stock in the secondary market has stopped, despite Linqto’s possession of 4.7 million Ripple shares. Ripple’s tender offer has currently stalled at $700 million. According to analysts, the valuation of the shares might have been in the range of $70–$95 per share. However, Ripple was not able to corroborate the current valuation.
Ripple has stated that Linqto’s collapse has nothing to do with the blockchain firm or XRP. However, the link has attracted public interest because Ripple is such a high-profile entity in crypto.
Bankruptcy Hearing and Restructuring Plans
The first bankruptcy hearing is scheduled for Tuesday. Witnesses comprise officers and advisors from Epiq and Jefferies. Linqto, a company focused on secondary transactions, is seeking $60 million in debtor-in-possession financing from Sandton Capital Partners. The financing is necessary for Linqto to continue limited operations during its restructuring efforts.
Linqto is going through bankruptcy. This means that many retail investors who believed they owned private shares will probably now end up as unsecured creditors and lose money.
It has raised bigger questions about oversight in the secondary equity market, especially for platforms that claim to democratize pre-IPO investments. The Linqto episode is a wake-up call that financial reform must be matched by trustworthiness and protection of investors.
