This week saw more coverage and fallout from the CrowdStreet Nightingale saga. We also saw a world record sale, a new platform launch, and a bunch of other small news.
If you missed the details of the CrowStreet saga, take a look at last week’s roundup. In short, $63M appears to have been misappropriated by a sponsor that raised on the platform.
This story has continued to develop. A piece by The Wall Street Journal, provides more details, including news that CrowdStreet will be receiving a new CEO.
The piece cites two red flags that should have been picked up by the platform. The first is Nightingale’s omission of performance results from two deals that went badly. This provided a skewed view of their track record to investors. The second was an arbitration clause requiring disputes be handled through a rabbinical court.
Arbitration clauses are pretty normal though, right? Well, the real kicker is the rabbinical court part. They’re unique to Israel’s legal system and are a religious court. That’s not something you’d generally expect to find in a real estate deal for office buildings in Atlanta or Miami.
The WSJ also went on to further review 104 other deals offered on the platform, finding:
- More than 50% of deals did not meet projected returns.
- Investors lost ~$34M on 19 underperforming deals
- 12 deals lost ~100% of investors’ principal contributions
- 20 deals meaningfully outperformed
- It’s still too early to know how hundreds of others will pan out
- If developers encountered shortfalls, they required investors to contribute more – or risk losing investments. One example includes a $45M project needing another ~$32.5M after the deal closed to complete the project.
- CrowdStreet facilitated a raise for a firm that lied to investors, the SEC, and the Justice Department. Their CEO was found guilty of fraud for the fundraising and sentenced to prison.
There’s also another case of fraud documented. In 2018, a company called MG Capital raised $35M for a real estate fund ($1.8M from CrowdStreet investors) alleging strong historical performance.
In 2021 the SEC and Justice Department charged them with securities fraud based on falsified reports. These reports hid meaningful losses and also entirely made up the presence of a previous fund. CrowdStreet investors lost about $1.2M to the fraud.
There’s more information in the article and the entire thing is worth a read.
Investors in an unboxed iPod on Rally had a wild couple of weeks.
On July 27th, they received a buyout offer for the asset. The offer would have been a 10.4% net return since the last trade, but only a 1.6% net return since IPO. It was a close vote, but appears to have ultimately failed.
That turned out to be the right decision. On July 31st, investors received a higher offer. This time for $29K, 11.2% net return since IPO, and a world record sale price for a first generation iPod. This time, the vote was approved.
Europe has a new NFT-based music royalty investing platform. MasterExchange announced their official launch this week. The platform seems similar to Royal. There is a “Investment License Agreement” for a share of the royalties. That is broken down into shares which are represented by an NFT.
We’re not sure when it happened, but Royalty Exchange has done some UI updates. This is mostly seen on the listings pages. Other than the updated look, we think the listings are ultimately a little bit easier to navigate.
Arrived hit another milestone this week. Announced in email and on Twitter, there has been over $100M invested on Arrived. They also note that makes Arrived the fastest growing real estate crowdfunding platform of all time.
To be somewhat fair to other platforms, companies like Fundrise helped pave the way for real estate crowdfunding. So Arrive’s rapid growth is, in part, thanks to some of the grinding and slower growth of their predecessors.
CNBC Top 200 Fintech Companies
CNBC has released their list of the top 200 fintech companies. Here are some names that we recognized from this list:
- Alternate financing
- Realty Mogul
- Alternate lending
- Honeycomb Credit
There was not a category for alternative investments in general. It’s interesting to see the names that did and did not make the list. In particular, the choice to include SeedInvest after they were acquired is a bit strange to us.
ANote Music recently announced on Twitter that their first K-pop catalog would be coming to the platform on August 23rd. This has been a popular genre in recent years, so we’re curious to see what the catalog valuation looks like.
In a Tweet that is equal parts interesting and unclear, ARTSPLIT appears to have announced the “splituniverse.”
They list art, music, movie, pub, and prop splits in the photo. However, there are no mentions of Movie, Pub, or Prop on their website that we can find. A Google search for “MovieSplit” only returns a 2016 M. Night Shyamalan film (“Split”) which IMDB users say is actually pretty OK.
So, in the end, it’s not entirely clear to us what this announcement is. If it’s for a unified platform for investing in Art, Music, Real Estate, as well as Movies and “Pub” that’s pretty exciting!