Citigroup, YieldStreet Plans Risky Hedge Fund Product for Retail Customers

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Citigroup bank and online investment platform YieldStreet announced a partnership to allow retail investors to purchase credit investments ordinarily restricted to hedge funds and billionaires. Lend Academy points out that the deal could evolve into additional areas such as energy and infrastructure.

Energy, such as oil-and-gas, can be a particularly risky sector, such as the Los Angeles-based Breitburn Energy Partners LP (BBEPQ) product that succumbed to risk and lost nearly all of its value in 2017, or DC Solar, a liquidated alternative energy company tied to multiple criminal convictions in what SEC investigators in 2019 described as a Ponzi scheme.

According to Business Insider, YieldStreet seeks to "open up sophisticated products and digital wealth mangement to customers beyond Wall Street's big-money investors," which sounds like noble cause at first glance; however, selling sophisticated products to unsophisticated investors remains a hot-button suitability issue for FINRA and other regulators due to the risk involved.

For instance, FINRA's 2018 and 2019 exam priorities letters made reference to protecting senior and elderly clients, which FINRA identified as potentially unsophisticated investors and customers for whom complex and risky products were unsuitable.

Similarly, while an ultra-high-net-worth client such as a billionaire may be able to absorb the risk of losing a few million dollars due to a speculative investment, an investor with a conservative-or-moderate risk tolerance and significantly lower liquid net worth may not.

Although YieldStreet vowed to provide information on the investments to clients, Bank Investment Consultant notes that experts typically worry about retail investors participating in private credit because of the added risk posed by an illiquid and unusual nature of the assets involved. This same illiquidity could thus render these products unsuitable for many retail investors.

If you have invested with any firm, broker, or financial adviser who solicited or unsuitable recommended an investment in an unsuitable or illiquid product that has proven harmful to your investments or interests, such as a risky credit or debt investment not in concert with your stated investment objectives or risk tolerance level, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.