Investors say real estate crowdfunding platform CrowdStreet helped facilitate a multimillion-dollar fraud by way of a Chicago office building, and now they want a refund.
A group of 125 investors is taking legal action against the Austin-based investment platform, alleging it facilitated fraud in Nightingale Properties’ $130 million acquisition of 200 West Jackson Boulevard, Bisnow reported.
The investors are demanding $7.2 million in damages from CrowdStreet, plus interest, fees and punitive damages, in a claim filed this week with the Arbitration Service of Portland.
CrowdStreet failed to do its due diligence on Nightingale and its CEO Elie Schwartz before allowing the firm to raise $25 million for its 2022 purchase of the 29-story tower in the Chicago Loop, the investors claim.
Schwartz has since pleaded guilty to wire fraud for misappropriating $54 million CrowdStreet funneled to him for failed office deals in Atlanta and Miami Beach.
The West Jackson investors accuse CrowdStreet of misrepresenting Nightingale’s financial commitment by stating the firm would contribute $11.7 million in equity to the deal. In reality, at least $5.8 million of that capital was never put in, the investors claim.
Nightingale bought the tower for $130 million in January 2022. It was financed with an $86 million CMBS loan from Citibank and a $17 million mezzanine loan from Kawa Capital Management.
The landlord is up to date on loan payments, and the building was 82 percent leased as of September, according to a letter to investors from CrowdStreet, which said JLL had since taken over operations and control of the property’s bank accounts.
CrowdStreet knew — or should have known — about Nightingale’s misconduct but continued promoting its deals, investors argue, while granting it “enterprise-level sponsor” status, the platform’s highest designation.
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The latest arbitration follows a separate 2024 claim with the Financial Industry Regulatory Authority, in which a dozen investors sought to shut down CrowdStreet’s broker-dealer operations after losing $1.5 million in failed Nightingale deals.
Schwartz caused 800 investors to send about $62.8 million for real estate investments that he diverted for his own use, according to federal prosecutors. He awaits sentencing, facing a maximum of 20 years in prison.
Full Story: The Real Deal March 7 2025
