Alternative finance platform Yieldstreet is not giving up its fight to recover massive losses in a ship recycling fraud, despite a US court dismissal of its case against its maritime financial advisors.
The New York-based crowdfunder is vowing to carry its fight with Four Wood Capital to other venues.
Meanwhile, Yieldstreet itself is facing legal challenges.
The Yieldstreet-Four Wood battle is just one strand of a web of disputes following a disastrous series of investments in ship recycling in 2018 and 2019 to parties connected to prominent cash buyer Tahir Lakhani.
Yieldstreet has been trying to collect since 2020 on a $76.7m English High Court judgment against Lakhani and two sons. Its lawsuit against Four Wood, plus chief executive Steven Baffico and Andrew Simmons of Cyprus-based Four Wood affiliate Global Marine Transport Capital, seeks to hold Four Wood responsible for the advice it gave Yieldstreet on the Lakhani deals.
But Yieldstreet’s investors are suing Yieldstreet for not following Four Wood’s investment advice.
In particular, they fault Yieldstreet for structuring the lending to Lakhani’s North Star Group as a series of separate loans rather than a revolving facility, against advice.
The US Securities and Exchange Commission is also investigating Yieldstreet’s practices towards its investors.
No ruling on the merits
Last week, TradeWinds reported on the dismissal of Yieldstreet’s US federal case against the Four Wood parties. Southern District of New York judge Paul Gardephe did not rule on the merits but found the dispute to be a finance rather than a maritime matter, and not subject to federal admiralty jurisdiction.
In a statement to TradeWinds, Yieldstreet made clear that it is not giving up.
“We are pleased that the Court resolved the purely procedural question over where the case against Four Wood should proceed,” wrote Yieldstreet. “As expected, the Court did not even entertain Four Wood’s baseless request that the case be thrown out on the merits.”
Yieldstreet cited a London judgment against the Lakhanis, in which the English High Court found “strong evidence of a massive fraud against Yieldstreet”.
In the federal suit, Yieldstreet had sought to tie the fraud to advice it received from Four Wood, and it made clear that it would continue to do so.
“Four Wood introduced the Lakhanis to Yieldstreet, brought Yieldstreet the transactions in question, advocated for Yieldstreet to proceed with the deal, and continued to lie on behalf of the Lakhanis after Yieldstreet initially raised concerns about the status of the assets,” a representative for Yieldstreet wrote to TradeWinds.
“We look forward to prosecuting our fraud and other claims against Four Wood in New York state court, and will continue to take decisive action against any parties that we identify as having aided and abetted this fraudulent scheme,” said Yieldstreet in its statement to TradeWinds.
Four Wood also welcomed the ruling.
“The dismissal and closure of the case is the one we fully expected and thank the judge for acknowledging that this matter had no business in federal court,” Four Wood wrote in its own statement.
Four Wood described the claims against it as “baseless, desperate, and defamatory”, and an attempt to shift blame.
“[As] a result of many ill-advised, fully discretionary decisions made by Yieldstreet, their failure to acknowledge and adhere to sound, conventional advice from competent advisors and service providers, and their conscious failure to disclose material facts and risks to their investors, Yieldstreet is now an organisation with serious legal and regulatory issues,” said Four Wood in its statement.
Yieldstreet was not the only lender stung by funding the North Star Group deals, but its losses were apparently the greatest. Oaktree Capital Management-backed private equity firm Njord Partners won a London judgment for $47.3m.
The Yieldstreet representative told TradeWinds the value of the English High Court judgment against Lakhani and two sons is now worth over $78m including interest. Recent efforts to reach Lakhani for comment have been unsuccessful.
As TradeWinds has reported, Yieldstreet lent some $89.2m to some 15 cash buying entities in 2018 and 2019. Almost all ended up in default, and Yieldstreet won the London judgment against the Lakhanis in October 2020.
Yieldstreet claimed that the cash-buyer parties had juggled assets, deceived the lenders about the location and existence of ships bought for scrapping, and used borrowed funds to pay off other lenders, and the English High Court ruled in its favour.
