Linqto: $500M Chapter 11 After Securities Law Violations

Linqto Texas, LLC and affiliated entities filed for chapter 11 bankruptcy protection on July 7, 2025, in the U.S. Bankruptcy Court for the Southern District of Texas, following the shutdown of a private investment platform that facilitated over $460 million in transactions. The filing follows the discovery of alleged securities law violations and structural defects that raised questions about what customers own and whether title was properly transferred. A confirmation hearing set for January 28, 2026 was announced for the case.

The debtors report between $500 million and $1 billion in both assets and liabilities, affecting a customer base of more than 13,000 investors spanning more than 110 countries. The bankruptcy follows a platform that positioned itself as expanding access to pre-IPO investments in technology companies including Ripple, SpaceX, and other private firms.

Company Background and Growth

Linqto was founded in 2010 by Bill Sarris and Vicki Sarris, a husband-and-wife team based in San Francisco. Bill Sarris was formerly a financial services architect at Intuit, while Vicki Sarris came from a background in biology. The company initially focused on enterprise software solutions before pivoting to private market investments.

The platform's growth accelerated in 2019 when Greg Kidd of Hard Yaka Inc invested $1 million into the company. In 2020, Linqto launched its trading platform for accredited investors, positioning itself as a gateway to pre-IPO securities. The company raised $8.83 million in total funding through various rounds and expanded its portfolio to include securities in 111 private companies.

Regulatory milestones and expansion. In November 2022, FINRA granted Linqto its broker-dealer license for secondary trading of equity securities—a regulatory approval that enabled the company to operate as a regulated marketplace. By March 2023, Linqto had surpassed $200 million in total member investments. The platform's self-directed investment interface had no fees and offered investment minimums of $5,000 for first-time and subsequent investments.

In August 2022, Linqto acquired Trustline with the stated goal of building a decentralized exchange for private market securities. This acquisition reflected the company's plans to combine traditional private equity access with blockchain technology, an approach that attracted interest from cryptocurrency-adjacent investors, particularly those seeking exposure to Ripple Labs.

Sarris characterized the platform's mission in promotional materials: "This is a game changer. Linqto has democratized the private equity asset class by making investments in high-quality private companies accessible, affordable, and now liquid." In September 2024, the company announced plans for a public listing directly on the NASDAQ—an announcement that came just weeks before the Zawrotny whistleblower lawsuit and SEC investigation began.

Management Transition and Internal Investigation

The leadership changes began with a leadership overhaul in January 2025. F. Daniel Siciliano, former CEO and Co-Founder of regtech firm Nikkl, was appointed CEO effective January 2, 2025, replacing founder Bill Sarris. The leadership changes resulted from regulatory inquiries concerning historical business and compliance practices.

The new executive team included Sean Bowden as CEO of Linqto Capital, Mike Huskins as General Counsel, Cathy Siciliano as Chief Operating Officer, and Jesus Ancheta as Chief Administrative Officer. The management restructuring followed the compliance issues that later came to light.

New leadership's internal investigation revealed findings about the platform's operations. Management discovered a "culture of systematic and pervasive non-compliance" along with extensive regulatory compliance violations dating back years. The company terminated 47% of its full-time staff on March 18, 2025, as part of a cost-reduction effort.

The First Day Declaration details the specific structural defects uncovered by the internal investigation:

• Linqto Liquidshares LLC's original Certificate of Formation did not comply with Delaware law for series limited liability companies, meaning the Series were not properly formed
• No Series Schedules were attached to the Liquidshares Operating Agreement as required
• The Master Purchase Agreement was not executed until after the Platform began operating
• No evidence that securities were actually transferred to Liquidshares Manager or that recordkeeping requirements were met
• Transfers of securities to Series would have likely violated purchase agreements and Issuing Companies' transfer restrictions

These defects raised questions about whether customers ever held valid ownership interests in the securities they believed they had purchased.

Beyond structural defects, creditor filings in the bankruptcy case allege fraud. According to a Motion to Compel filed by creditors A.O.H. Driedijk Holding B.V. and Jaimin Bhatt, Linqto allegedly deceived customers through multiple mechanisms:

• Undisclosed excessive markups: Fees ranging from 20-60% and in some cases up to 150% above actual acquisition costs
• Non-accredited investor access: The platform allegedly allowed non-accredited investors to participate despite regulatory restrictions
• SPV structure misrepresentation: Customers were sold Series Membership Interests instead of direct shares without adequate disclosure of the implications
• Accredited investor verification failures: The company failed to maintain an effective system for verifying accredited investor status

These allegations form the basis of ongoing discovery disputes, with creditors seeking documents related to Linqto's financial wellbeing, dealings with pre-IPO companies, corporate formation, and materials produced to the SEC and the Board's special subcommittee investigating former insider wrongdoing.

As counsel for the creditors' committee stated during the September 16, 2025 hearing: "Because of Linqto's fraudulent conduct, we can't do both. We can't give everyone both of the things they were promised. We can't give them their individual investment decisions and a fully liquid security. We can only do one."

Platform Shutdown and Operational Cessation

The investment platform shut down on March 13, 2025, ceasing all customer-facing, revenue-generating activities. As reported by FinTech Weekly, new leadership discovered potentially insurmountable operating challenges stemming from the securities law violations and ongoing enforcement investigations.

The platform shutdown left thousands of customers unable to access their accounts or liquidate their positions. The discovery that customers may not have owned the securities they purchased raised questions about the platform's stated value proposition.

Gene Zawrotny Whistleblower Lawsuit

The first public indication of Linqto's compliance failures came not from regulators but from a former executive. On October 7, 2024, Gene Zawrotny filed a whistleblower lawsuit in the Superior Court of California, County of Santa Clara, alleging retaliation after raising compliance concerns.

Zawrotny joined Linqto as Chief Revenue Officer on January 2, 2024. His employment lasted only 107 days—during which he claims to have made contributions that led to the company securing financial deals. Upon joining, Zawrotny reported several compliance issues that would later be confirmed by new management and regulatory investigators.

According to the complaint, Zawrotny discovered that many of Linqto's users were unaccredited investors despite the platform's offerings being legally limited to accredited investors. He raised alarms about misleading marketing practices, unlicensed brokers operating within the firm, and artificial inflation of share prices beyond the 150% markup limit recommended by FINRA. The lawsuit also alleges that Linqto made misleading user base claims, overstating its actual customer numbers.

The complaint asserts four causes of action: retaliation under California Labor Code § 1102.5, fraudulent inducement, breach of the implied covenant of good faith and fair dealing, and quantum meruit. Zawrotny alleges that Linqto used his public profile to enhance its market position before terminating him to avoid paying his salary and prevent his stock options from vesting.

Within weeks of the filing, both the SEC and FINRA commenced formal investigations into Linqto's business practices—investigations that later referenced the "culture of systematic and pervasive non-compliance" described by new management.

Regulatory Investigations

The bankruptcy filing occurs against a backdrop of multi-agency regulatory scrutiny that preceded the filing. The Division of Enforcement of the U.S. Securities and Exchange Commission initiated an investigation in October 2024, examining potential securities law violations dating back to 2020. The company is under active SEC investigation for violations that span nearly the entire operational history of the trading platform.

Beyond the SEC, FINRA is investigating the broker-dealer arm of Linqto. Linqto Capital LLC, an SEC-registered broker-dealer and FINRA member, came under review in late 2024. FINRA concluded its initial review and referred the matter to FINRA Enforcement in December 2024. As of August 2025, FINRA Enforcement continues making inquiries into the operations of Linqto Capital.

The dual-track regulatory investigation added uncertainty for the bankruptcy proceedings, as potential enforcement actions and penalties could impact creditor recoveries. Pursuant to a stipulation filed September 30, 2025, the SEC's deadline to file nondischargeability complaints has been extended to February 10, 2026.

The Debtors are actively pursuing discovery against third parties under Bankruptcy Rule 2004 to investigate potential claims and uncover information about the fraud scheme:

• Xclaim Inc. - served with Rule 2004 examination and document production requests on November 11, 2025
• Andrew Glantz - served with Rule 2004 examination requests on November 11, 2025
• X Corp. (Twitter) - served with document production requests in August 2025

These examinations suggest the estate is investigating potential claims against parties who may have assisted in or benefited from the alleged fraud, including those who may have received preferential treatment in securities transactions.

Asset Holdings and Portfolio Value

Linqto's investment vehicle, Linqto Liquidshares, LLC, holds securities valued at over $500 million across 111 companies. As Cointelegraph reported, the portfolio includes approximately 4.7 million Ripple shares, representing the single largest concentration of value in the portfolio.

The asset base is central to potential creditor recoveries, though the complex ownership structure and regulatory issues complicate distribution. The official case information site maintained by Epiq provides ongoing updates for creditors and interested parties.

The Debtors have been monetizing portfolio holdings through block trades to generate liquidity for estate operations. Recent transactions include:

These block trades are executed free and clear of liens and encumbrances, with any security interests attaching to the proceeds. The purchasers in these transactions receive good faith purchaser protections under Section 363(m) of the Bankruptcy Code. Additional portfolio companies such as Cerebras Systems, Axiom Space, Solugen, Workrise Technologies, Consensys Software, and Circle Internet Financial remain in the portfolio pending further monetization or distribution to creditors.

DIP Financing Structure

To maintain operations during the bankruptcy process, Linqto secured debtor-in-possession financing from Sandton Capital Solutions Master Fund VI, LP. The DIP Financing Motion sought up to $60 million in post-petition financing. The financing evolved through the settlement process.

The court entered an Interim DIP Order the day after filing, authorizing $10 million. The Final DIP Order entered October 6, 2025, authorized the full $25 million facility. The October 2025 settlement modified the DIP structure to exclude Platform Securities and their proceeds from the DIP Liens, protecting customer assets from the senior secured claims.

Key Employee Retention Program

To retain personnel through the restructuring process, the Debtors filed a motion on December 9, 2025, seeking approval of a Key Employee Retention Plan (KERP) for non-insider employees. The court entered the KERP Order on January 4, 2026.

The KERP was designed to replace prior years' company performance-based bonuses and compensate employees for additional labor required during the Chapter 11 cases. According to the motion, the Debtors believe that without the KERP commitment, these employees would likely have departed due to the stresses of the Chapter 11 process, prior workforce reductions, resignations, and reported threats and harassment directed at remaining staff.

Settlement and Customer Recovery Options

On October 3, 2025, the bankruptcy court entered the Settlement Approval Order approving a comprehensive settlement between Linqto, the Official Committee of Unsecured Creditors, and the Deaton Parties representing thousands of customers.

During the settlement hearing, creditors' attorney Kenneth Aulet told the court: "This is a fraud case. What Linqto promised and what it delivered are very, very different."

The Settlement Motion was filed on September 16, 2025, announcing the settlement negotiated by Brown Rudnick on behalf of the Official Committee of Unsecured Creditors. The settlement provides two recovery structures:

The Liquidating Trust will hold Liquidshares assets (excluding CEF assets) with a target to liquidate within five years. Customers electing this option will receive Trust Interests proportional to their holdings. Liquidity may be available via secondary platforms, with transaction costs borne by the directing customer. This option serves as the default for customers who do not make an affirmative election. Alternatively, the Closed-End Fund structure would create a publicly traded Delaware statutory trust or corporation, registered under the Investment Company Act. The CEF would invest approximately 80% in private equity and offer intraday liquidity through public trading. Customers can elect between these recovery structures, with options presented for a vote by the end of December 2025.

The Plan of Reorganization establishes the following classification structure for claims:

As explained during the December 5, 2025 hearing, the Series SPV structure was designed so that "Linqto held only bare legal title to the assets, but the beneficial interest residing in the individual investors." Customer claims under Class 4 will receive distributions tied to their specific Series Equity interests, with Ripple customers receiving Trust Interests tied to Ripple-specific Series Equity plus a ratable share of the Ripple tender offer cash proceeds.

Ripple Reservation of Rights

The concentration of Ripple investors within the customer base creates complications for the restructuring. Of the approximately 13,000 Linqto customers, around 11,300 are invested in units or shares of Ripple—representing approximately 87% of the affected customer population.

Ripple Labs Inc. formally filed a Reservation of Rights to challenge Linqto's bankruptcy strategy. Ripple's filing prevents its private shares from entering the public market without Ripple's approval. As a private company by choice, Ripple has not given consent for its shares to be traded publicly, and the company emphasized that permitting such arrangements could distort Ripple's valuation and create confusion over ownership.

This reservation raises feasibility concerns for the Closed-End Fund option, which would require some mechanism for public trading of the underlying private securities. The resolution of Ripple's objections will be important to determining which recovery options remain viable for the majority of affected customers.

The complexity of the Ripple distribution challenge was explained during the September 16, 2025 hearing: "Take Ripple, for example. There's 8,000 Ripple holders at Linqto. Trying to distribute the shares of Ripple to each of those holders would immediately make Ripple a public company, which Ripple quite reasonably is not interested in having done involuntarily to it. And so that's why we're here and that's why these cases are necessary because Linqto doesn't have a way right now to just give the securities back."

Class Action Litigation

Beyond the bankruptcy proceedings, affected investors are pursuing direct claims against former management. Attorney John Deaton filed a securities fraud class action in New York on behalf of thousands of retail investors. Deaton, who previously represented XRP holders in the Ripple vs. SEC case, has characterized the litigation as "fighting for the XRP Army"—reflecting the cryptocurrency community's presence among Linqto customers.

The lawsuit targets former CEO William Sarris personally and is not subject to bankruptcy protection due to its personal liability nature. According to court filings, Linqto's legal team flagged violations in internal memos from 2023 and 2024, warning the company was violating multiple U.S. laws. Sarris allegedly ignored these warnings and continued using the same sales tactics. Deaton disclosed that he personally invested $495,000 through the Linqto platform, giving him a personal stake in the outcome beyond his role as class counsel.

The SEC and Justice Department are also investigating whether Sarris sold an additional 16,000 Ripple shares without customer permission—allegations that could result in additional liability beyond the class action claims.

Over 3,000 investors have joined the class action lawsuit against Bill Sarris. Any recovery from liability insurance or settlements will be directed toward compensating harmed retail investors outside the bankruptcy estate.

Complicating the class action is the question of insurance proceeds. William Sarris filed a motion on November 17, 2025, seeking relief from the automatic stay to use proceeds from the company's Directors and Officers liability insurance policies to fund his personal defense expenses. The motion seeks access to the Hudson D&O Policy and related excess policies to pay, reimburse, or advance defense costs incurred in the class action lawsuit.

This creates potential tension between Sarris's defense needs and the estate's interests, as D&O insurance proceeds could otherwise potentially benefit the estate or creditors. The outcome of this dispute may affect the resources available for both Sarris's defense and potential recoveries for harmed investors.

Shareholder Opposition and Competing Interests

The settlement has drawn opposition. A group of Linqto Texas LLC shareholders objected to the settlement between the fintech startup and the committee of unsecured creditors, proposing a separate plan claiming it would provide greater value. Additional investor objections have targeted the settlement terms, with some creditors arguing that the proposed structures undervalue their claims.

This shareholder opposition reflects the competing interests in the case. Customers who believed they owned securities, traditional creditors, regulatory authorities, and equity holders all have stakes in the outcome. The claims process will address these competing interests and determine the treatment of each constituency.

During the October 3, 2025 hearing, counsel for the creditors' committee revealed additional concerns: "There was front running, we believe, in terms of how Linqto would sell securities and benefit those folks who were the larger investors early on. We don't know who those people are. We don't know if we have claims against them." The committee said it is investigating whether early, larger investors received preferential treatment at the expense of later retail customers.

Venue Dispute Resolution

An early dispute in the bankruptcy proceedings concerned the appropriate venue. Law360 reported that Sapien Group USA LLC, a shareholder and customer, filed an emergency motion to transfer venue to Delaware.

Judge Alfredo R. Perez rejected the motion on August 5, 2025, ruling that the case would remain in the U.S. Bankruptcy Court for the Southern District of Texas. As confirmed by Business Wire, the decision kept the case in Texas.

Active Claims Trading Market

The bankruptcy has generated claims trading activity, with multiple distressed debt investors and claims aggregators purchasing customer claims. Notable transferees include Cherokee Claims Acquisition, SLFAQ LLC, Serrur Investment Partners, and Karpe Diem LLC. These transfers indicate investors are willing to purchase claims at a discount, seeking recoveries exceeding their acquisition cost.

Purchasers are acquiring claims despite unresolved questions about whether customers hold property interests or mere creditor claims against the estate.

Path to Plan Confirmation

The case is now proceeding toward plan confirmation on an expedited timeline. Judge Alfredo Perez set a confirmation hearing date of January 28, 2026, following the Disclosure Statement Approval Order conditionally approving the Disclosure Statement on December 11, 2025.

As of early January 2026, multiple plan objections have been filed, including a motion for sanctions against the debtors and their counsel. The contested confirmation hearing is scheduled for January 28, 2026.

Industry Context and Regulatory Landscape

The Linqto bankruptcy occurs during a period of expansion in the pre-IPO investment platform sector. The private secondary market has grown from $17 billion in 2020 to over $45 billion in 2024, driven by longer time-to-IPO cycles and increased demand for liquidity among employees and early investors. The number of private market platforms has grown 400% since 2018, with total platform-facilitated volume reaching $15+ billion annually.

This rapid growth has attracted regulatory scrutiny. The SEC Division of Examinations published 2025 examination priorities expressing concern about trading in pre-IPO companies and the sale of private company shares in secondary markets. Regulatory focus on platforms like Linqto reflects broader concerns about whether retail investors are receiving adequate protections in private markets.

Accredited investor requirements. Federal securities law restricts private placements to accredited investors—individuals with annual earned income exceeding $200,000 (or $300,000 for married couples) or net worth above $1 million excluding primary residence. These thresholds, unchanged for decades, determine who can access pre-IPO investments. Linqto's alleged failure to verify accredited investor status is a core allegation in both the Zawrotny lawsuit and regulatory investigations.

The Equal Opportunity for All Investors Act of 2025, passed by the House of Representatives in July 2025, would direct the SEC to create a test allowing individuals to qualify as accredited investors without meeting wealth thresholds. This legislative development reflects ongoing tension between investor protection and market access.

Structural lessons. New management reported "systematic and pervasive non-compliance." As counsel emphasized during the September 16, 2025 hearing: "This is a fraud case. And I think it's important to note that current management are the whistleblowers. They're the folks that brought it to the surface. Without them, this fraud would be ongoing."

The platform facilitated over $460 million in transactions and faced basic structural failures, including the failure to properly form series LLCs under Delaware law. The plan offers two recovery options, and the Closed-End Fund structure is subject to Ripple's objections and other feasibility concerns raised in the case.

Frequently Asked Questions

When did Linqto file for chapter 11 bankruptcy and what triggered it? New management discovered serious securities law violations, structural defects in the company's LLC formation, and a "culture of systematic and pervasive non-compliance." The platform shut down on March 13, 2025, and Linqto filed chapter 11 on July 7, 2025.

What structural defects were discovered? Linqto Liquidshares LLC's Certificate of Formation did not comply with Delaware law for series LLCs, no Series Schedules were attached to the Operating Agreement as required, and there was no evidence that securities were actually transferred to Liquidshares Manager. These defects raised questions about whether customers held valid ownership interests.

How many customers are affected? More than 13,000 customers across more than 110 countries are affected. Approximately 11,300 of these customers (87%) are invested in Ripple shares.

What is the DIP financing structure? Sandton Capital Solutions Master Fund VI, LP is providing up to $25 million plus a $5 million accordion at 14.50% PIK interest. The October 2025 settlement modified the DIP structure to exclude Platform Securities from DIP liens, protecting customer assets.

What recovery options are available to customers? Customers can choose between a Liquidating Trust (default option, targets liquidation within five years) or a Closed-End Fund (publicly traded, offering intraday liquidity). The CEF option faces feasibility challenges due to Ripple's reservation of rights objecting to public trading of its shares.

Why did Ripple file a reservation of rights? Ripple Labs filed a reservation of rights to prevent its private shares from entering the public market without consent. As a private company by choice, Ripple has not consented to public trading of its shares, which creates challenges for the Closed-End Fund option.

What is the SEC investigation about? The SEC Division of Enforcement initiated an investigation in October 2024 examining potential securities law violations dating back to 2020. FINRA is also investigating the broker-dealer arm, Linqto Capital LLC.

What allegations are made against former CEO Bill Sarris? A securities fraud class action filed by attorney John Deaton alleges Sarris ignored internal warnings about legal violations, undisclosed excessive markups (20-60%, sometimes up to 150%), and allowed non-accredited investors to participate. Over 3,000 investors have joined the lawsuit.

When is the confirmation hearing? January 28, 2026. The voting deadline is January 21, 2026, and the objection deadline is January 14, 2026.

What is the value of the portfolio assets? Linqto Liquidshares, LLC holds securities valued at over $500 million across 111 companies. The largest holding is approximately 4.7 million Ripple shares. The company received approximately $18.8 million from a December 2024 Ripple tender offer.

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