Elie Schwartz’s Nightingale, CrowdStreet Talk Settlement

Just weeks after millions of dollars that investors sent two Nightingale projects went missing, the developer is in talks to reach a settlement.

An attorney for an entity representing CrowdStreet investors in bankruptcy court announced the news during a hearing Thursday morning. Bisnow first reported the news.

“Nothing has been agreed to, but the debtors are making progress in their negotiations,” said the investors’ attorney, Jorian Rose of Baker Hostetler, during the hearing.

The settlement talks are a shocking turn in the fiasco. In July, a fiduciary for the investors said tens of millions that was supposed to go into Nightingale office deals in Miami Beach and Atlanta were instead “misappropriated” by Nightingale CEO Elie Schwartz. The fiduciary later said the Securities and Exchange Commission and the Department of Justice were looking into the matter.

For each Nightingale project, the investors formed LLCs, which have filed for bankruptcy, making them debtors. Rose said they are still going forward with litigation against Nightingale even as settlement talks occur.

“The debtors believe they have significant claims in these cases,” said Rose, mentioning breach of fiduciary duty as one possible claim.

Rose did not give any details about a potential settlement. It is also not clear how one would affect the federal investigations. Schwartz did not immediately respond to an inquiry and has yet to comment publicly on the allegations.

The investors’ fiduciary, Anna Phillips, said at a recent webinar with investors that Schwartz offered to settle the case, but his terms were not acceptable.

Nightingale raised more than $54 million from over 650 investors to acquire the Atlanta Financial Center office complex through CrowdStreet, a crowdfunding platform. It also used the platform to raise $9 million from 167 investors, purportedly to buy an eight-story office building in Miami Beach. Neither deal closed, and investors started asking questions.

In July, Phillips hosted an initial webinar with investors, reporting that only $125,000 was in the bank account for an entity tied to Atlanta Financial Center, and that the Miami Beach account was similarly bare.

Phillips said she found investors’ money had been transferred to Schwartz and his affiliates almost immediately, rather than put toward the projects. The investor entities were put into bankruptcy protection in Delaware with the goal of recovering their money.

CrowdStreet also came under scrutiny for failing to put the investors’ money into an escrow account.

Schwartz has other problems as well. In July, Howard Marks’ Oaktree Capital Management filed to foreclose on 111 Wall Street, which Nightingale and partners had bought for about $395 million.

In Soho, Nightingale faced foreclosure on its office and retail property at 300 Lafayette Street. The company’s partner on that deal, Intervest Capital Partners, bought the defaulted note, ending the foreclosure process.

Nightingale also lost the Whale Building in Brooklyn’s Sunset Park and is struggling with properties in Philadelphia and Chicago.