CrowdStreet Investors File $1B Class-Action Lawsuit

Angry investors are going after crowdfunding platform CrowdStreet, seeking to recoup more than $1 billion in funds.

Three victims in Elie Schwartz’s Nightingale Properties case, who each lost at least $25,000, filed a class-action lawsuit in Texas, where CrowdStreet is based, Bisnow reported. Former CrowdStreet chief executive officer Tore Steen and recently departed chief investment officer Ian Formigle are also named as defendants.

The investors — a class believed to be at least a thousand strong — are seeking to rescind more than $1 billion of investments made on the platform before 2023. That’s the year CrowdStreet secured a broker-dealer license with the Federal Industry Regulatory Authority. Schwartz defrauded investors of $63 million the year before.

The plaintiffs claim CrowdStreet operated as an unregistered broker-dealer for years, selling and marketing securities and collecting commissions without properly protecting investors, in violation of securities laws.

The company claims that before it received its license, CrowdStreet was a neutral marketplace that connected investors to developers and sponsors but didn’t promote or recommend investments. The suit counters with claims that CrowdStreet acted more like an investment bank — promoting deals, conducting due diligence and earning fees.

The lawsuit includes a document showing a plan for CrowdStreet to pursue a FINRA license dating back to 2021.

CrowdStreet CEO John Imbriglia warned customers last week that the investors in the lawsuit were trying to “capitalize on the Nightingale situation by launching baseless lawsuits against CrowdStreet.” Imbriglia added that the company “will not let it distract us from our goals and mission.

CrowdStreet is facing a growing legal groundswell, though. This month, 125 investors roped into a campaign to raise $25 million for the acquisition of a Chicago office building filed an arbitration claim against the company, demanding the platform cover more than $7 million in losses for allegedly ignoring red flags in the deal.

Schwartz, meanwhile, pleaded guilty to fraud last month. He’s set to be sentenced in May and could receive up to 20 years in prison.

— Holden Walter-Warner