- Deaton joins Linqto creditors committee to boost retail investor recovery.
- Personal fraud suit bypasses bankruptcy to target the founder’s liability.
- The dual strategy maximizes pathways to recover funds from the Linqto fallout.
John E. Deaton has confirmed his intention to engage with the creditors committee in the Linqto bankruptcy case. This was following a statement from forensic accounting expert Rob Loh, who identified this approach as providing real power in the proceedings. The strategy aims to maximize recovery for retail investors who have been affected by alleged securities fraud.
Loh’s analysis highlighted the creditors committee as having actual authority to influence bankruptcy outcomes. This prompted Deaton to validate this pathway as the correct approach. The committee structure provides organized representation for creditors seeking to recover losses from the troubled investment platform.
While Linqto is undergoing Chapter 11 bankruptcy procedures in Houston, Deaton has brought a securities fraud class action lawsuit against Sarris, the company’s founder, on behalf of thousands of individual investors. The lawsuit operates independently of bankruptcy protections by targeting personal liability rather than corporate assets.
Personal Liability Claims Bypass Bankruptcy Shields
According to the class action, Sarris planned a multi-year strategy that involved unreported markups. On Linqto’s platform, this reached 60%, along with deceptive exemptions and unlawful sales techniques for private firm shares, such as those of Ripple and Kraken, through special purpose entities.
Court filings claim Sarris ignored in-house legal memos in 2023 and 2024, warning that products were infringing on multiple SEC and FINRA regulations. The claimed violations of the rules include acting as an unregistered broker-dealer and running unregistered investment companies without a license.
Deaton penned the suit so that it sues Sarris in his individual capacity, holding claims outside of bankruptcy protection. Any recovery under settlements or liability insurance would go towards compensating retail investors injured, not general creditors.
The court case is a follow-up to a prior lawsuit in October 2024 filed by then-Chief Revenue Officer Gene Zawrotny. Zawrotny had alleged a systemic failure of compliance and wrongful termination, citing his internal complaints about company practices.
Linqto Filed For Bankruptcy While Under Investigation
Citing “serious defects” in the company’s operations and structure, Linqto filed for Chapter 11 bankruptcy while under investigation by the SEC and FINRA. The filing for bankruptcy questioned customers’ ownership of what they actually own through the platform’s investment products.
Current management took control in recent months and placed Linqto under court protection during the scandal. Sapien Group, an Australian investment firm, says it has backing from 52% of Linqto shareholders as it challenges the current management in bankruptcy proceedings.
Sapien has engaged bankruptcy lawyers to explore options such as possibly withdrawing the Chapter 11 filing or exploring other options. It remains committed to its objective of preserving value for Linqto and shareholder investment.
The creditors committee approach enables Deaton to control bankruptcy results while seeking standalone claims for individual liability. The dual-prong approach maximizes probable paths for recovery by impacted retail investors who bought shares on Linqto’s platform.
Related: Linqto Scandal: Pro-XRP Attorney Deaton Rejects Refunds, Fights for Fair Payouts
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
