Investors sue Sharestates, claim $43M still outstanding

An investor group which claims to have placed $269.98 million in “borrower payment dependent notes” tied to Sharestates Investments loans sued the Great Neck-based financing firm yesterday, making a series of allegations, including that Sharestates is not pursuing foreclosures or guarantees aggressively enough. The suit alleges that Sharestates is giving special treatment to a New Jersey-based investor who has borrowed more than $100 million through the platform, according to the complaint. The complaint is seeking money damages, rescission of the agreement, and other relief.

PincusCo could not identify the individuals or companies behind the investment LLCs which filed the complaint, which were USST Assets Ltd., USST Assets LLC, USST Assets II LLC, USST Assets 3 LLC, USRE SPV LLC, USRE SPV II LLC, and USRE SPV III LLC.

One of the loans the investors took a stake is was a $10.5 million loan secured by 1049 Washington Avenue in the Bronx. Most of the loans were not in New York State.

Sharestates explains borrower payment dependent notes on its website, here.

Court filings are the positions of one party and are not necessarily accurate or complete. Sharestates has not filed response papers.

According to the complaint (selected excerpts):
“Plaintiffs would never have invested in the BPDNs had Sharestates disclosed that it would not service the loans in a commercially reasonable manner in accordance with industry standards or disclosed the true value of the advertised personal guarantees. This action arises out of Sharestates’ failure to pay over $43 million due to Plaintiffs following Sharestates’ multiple breaches of the contracts governing Plaintiffs’ investment in borrower payment dependent notes (“BPDNs”) issued by Sharestates and Defendants’ fraudulent and negligent misrepresentations and omissions made to induce Plaintiffs to purchase the BPDNs in the first place.” Because, as described in more detail below, the Stated Maturity dates have passed and Sharestates has breached covenants in the Indenture, Plaintiffs are entitled to seek recourse against Sharestates for payment of past-due principal and interest.” Perhaps most concerning is Sharestates’ routine unwillingness to place delinquent Borrowers (especially those Borrowers with whom Sharestates has aligned business and/or economic interests) into default and to exercise its rights and remedies, because taking such action could adversely impact Sharestates’ business and/or economic interests, including its ability to make additional loans to such Borrowers.” For example, Plaintiffs invested a total of $269,976,000 in BPDNs issued by Sharestates, with $137,367,000 invested in such BPDNs tied to Project Investments sponsored by Matthew Florio (the “Florio BPDNs” and “Florio Loans,” respectively). Mr. Florio is Sharestates’ biggest source of business. Mr. Florio has been a Borrower for over 20% of the projects funded by Sharestates through BPDNs.” Tellingly, since 2017, Plaintiffs have invested $269,976,000 in BPDNs issued by Sharestates and still have over in $43 million principal outstanding, with no certainty on the timeline for repayment. When one Florio Loan supported by a security interest in 148 properties became delinquent, Sharestates released its security interest in all 148 properties, and all it acquired in return was a partial ownership interest alongside Mr. Florio in one of the released properties. ” As of August 13, 2021, Sharestates offered 3,185 investments, at least 684 of which were related to Project Investments sponsored by Matthew Florio. Indeed, Sharestates and its affiliates initiated no fewer than 38 foreclosures in New York and New Jersey on non-Florio Loans between January 1, 2020 and July 30, 2021, despite its repeated statements to Plaintiffs that foreclosure was not an option with respect to Florio Loans. 68. Rather than foreclose on Florio Loans, Sharestates accepted a payoff amount that was less than the outstanding obligations, including outstanding principal and accrued and unpaid interest thereon, released collateral, and accepted an ownership interest in Mr. Florio’s properties without any corresponding benefit to Plaintiffs or other Noteholders.”

Complaint LINK

Direct link to Acris document. link