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iCap Equity Investor Losses

On September 29, 2023, iCap Equity, LLC and its associated entities sought Chapter 11 bankruptcy protection in the Eastern District of Washington. This move followed the departure of iCap’s CEO and the cessation of investor interest payments back in March. This bankruptcy action encompasses 26 affiliated companies. According to the filing, iCap’s assets ranged from $50 million to $100 million, while its liabilities fell between $100 million and $500 million. This implies a precarious situation for investors, as it signals the likelihood of significant unpaid liabilities in the event of liquidation.

Chapter 11 bankruptcy enables a company to restructure its debt while maintaining its operations. Nevertheless, unsecured creditors, which includes investors who provided funds through bonds or investments, often face the risk of losing their investments as part of the restructuring process. Chapter 11 proceedings can be expensive, with high levels of expenses to be paid to professionals assisting in the restructuring.

Serious allegations of securities fraud have been raised against iCap, its affiliated entities, and the Christensen brothers, detailed in a complaint filed by investors. These allegations encompass claims that many projects in iCap’s real estate portfolio have either not commenced or are not even owned by iCap. The complaint also accuses the Christensens of self-dealing to shield assets from creditors and enrich themselves. Several properties listed as iCap’s assets are being scrutinized for their actual value, such as a lot designated for golf course overflow parking and vacant lots, which contrast with the sophisticated developments promised in iCap’s private placement memoranda.

SEC filings indicate that numerous FINRA broker-dealers were involved in selling iCap private placements. When a U.S. company offers private placements to investors, it is required to file a Form D with the Securities and Exchange Commission to disclose which brokerage firms are participating in selling these securities. An Amended Form D filed in November 2021 for iCap Equity, LLC listed several brokerage firms involved in selling debt securities for the company. It was revealed that nearly $37 million had been raised in this offering at the time of filing, with another $13 million left to be sold, amounting to a total of $50 million. A significant selling commission of $4 million (8% of the total offering proceeds) was disclosed for compensating brokers. However, less than two years after this filing, iCap declared bankruptcy, leaving investors likely facing substantial losses on their investments.