Nightingale Properties Accused Further of Misappropriating Capital from Crowdstreet Investors
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The legal requirements for transparency and disclosure in financial operations as well as risks thereof represent the philosophical foundation of the US financial regulatory scheme. These requirements came to be in response to various eras of unanticipated losses, from the 1929 stock market crash to Enron to the Great Financial Crisis of 2008.
One of the most recent examples of their application is the case of Nightingale Properties, a commercial real estate investment firm that has raised over $100 million from investors through Crowdstreet, a crowdfunding platform for real estate.
In recent months, Crowdstreet has accused Nightingale of misappropriating capital from investors.
Nightingale Properties
Nightingale Properties was founded in 2015 by Michael Simkins and Michael P. Murphy to acquire and manage commercial real estate properties in the United States. Nightingale has raised money from over 1,000 investors through Crowdstreet.
Crowdstreet Accusations
In February 2023, Crowdstreet filed a lawsuit against Nightingale Properties alleging that the firm had misappropriated capital from investors.
Crowdstreet alleges that Nightingale misled investors about the risks associated with two of its projects, Atlanta Financial Center and Lincoln Place Tower. Crowdstreet also alleges that Nightingale transferred investor funds to other accounts without the investors' knowledge or consent.
Bankruptcy Filing
As a result of the Crowdstreet allegations, Atlanta Financial Center and Miami Beach Tower have both filed for bankruptcy protection. Crowdstreet is now seeking to take control of the two properties, as well as a third property in Chicago in connection with the allegations.
Investors' Accusations Regarding Crowdstreet
Some investors have also accused Crowdstreet of poor oversight. They allege that Crowdstreet did not do enough to investigate Nightingale's background before allowing it to raise money on the platform.
Crowdfunding Itself Could Mistakenly Be Blamed
The allegations against Nightingale Properties are serious and could have a significant impact on the nascent crowdfunding industry, which has been a boon for non-accredited, smaller investors, in particular.
The Crowdstreet platform has a number of safeguards in place to protect investors, including a due diligence process and a risk rating system; however, no system is perfect and there is thus always the risk of fraud.
Additional Fraud Allegations Made by Crowdstreet Against Nightingale
In addition to the allegations of misappropriation of capital, Crowdstreet has also accused Nightingale of engaging in other fraudulent activities, such as making false representations to investors and failing to disclose material information.
The Crowdstreet lawsuit is still ongoing, and it is not yet clear what the outcome will be. However, the case has already raised serious questions about the transparency and oversight of the crowdfunding industry.
No Defense Against Pure Fraud
The allegations against Nightingale Properties are a reminder that the risk of fraud will always exist when investing in crowdfunding projects, or projects financed any other way. No defense yet exists to prevent fraud, but the laws as they exist do have teeth.
Should either firm be found to have materially violated US securities laws in their actions or lack thereof, penalties are likely to be severe, and commensurate with damages.
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