Investors try to shut down CrowdStreet after Nightingale scandal


Investors who were victimized by Nightingale Properties’ Elie Schwartz through the website Crowdstreet are now going after the crowdfunding platform, Bisnow reported. 

They filed an arbitration claim with the Financial Industry Regulatory Authority. In addition to more than $3 million in damages, the investors are also seeking an injunction that would prevent the website from marketing or selling securities, effectively putting a halt to operations.

One of the lawyers behind the claim said the investors don’t have time to wait to recoup their lost money from Schwartz.

“That [Schwartz is] going to end up with handcuffs on eventually is, I think, pretty clear at some point, which will make paying back these investors from his stake impossible,” Joseph Wojciechowski told the publication.

The investors want FINRA arbitrators to force CrowdStreet to refund all the funds they put through the platform, even going beyond Nightingale investments. 

The attorneys argue the platform operated as an unlicensed broker-dealer and didn’t perform proper due diligence on the Nightingale offerings. They also claimed it was irresponsible that CrowdStreet didn’t require investor funds to be put into escrow accounts while deals weren’t closed.

CrowdStreet didn’t comment on the arbitration claim to Bisnow, except to say that “any claim that CrowdStreet acted as a broker in connection with Nightingale’s offerings is inaccurate.” The distinction may prove to be important because broker-dealers are governed by Securities and Exchange Commission rules. But independent securities law experts told the publication that CrowdStreet could be regulated by those rules regardless of any licensing.

CrowdStreet claims to be a neutral marketplace. It received its broker-dealer license in May 2022, but didn’t start operating in that capacity until after Schwartz lined his pockets with allegedly misallocated investor funds.

As part of a settlement, Schwartz owes $53 million to investors for allegedly misappropriating funds, paid in quarterly installments. Proceeds are expected to come from the sale of personal assets, including his penthouse at One West End in Manhattan and an 11-bedroom mansion in Englewood, New Jersey.

Schwartz is also expected to pay investors with funds from a sale of a Miami Beach property towards which he allegedly diverted funds. That sale, however, has collapsed, calling Schwartz’s ability to make investors whole into further question.

Holden Walter-Warner



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