In a pivotal turn inside a Texas bankruptcy court Tuesday, Linqto and its unsecured creditors’ committee unveiled a breakthrough agreement that could redefine how customers are compensated in the company’s Chapter 11 plan. The deal promises investors the chance to receive in-kind payment of securities rather than just cold cash, marking a striking shift from traditional bankruptcy recoveries.

The agreement, announced before U.S. Bankruptcy Judge Alfredo R. Perez, lays the groundwork for a resolution that acknowledges the unique nature of Linqto’s platform—an investment gateway that once boasted of giving individuals access to startups before their Wall Street debuts.

$500M in Securities at Stake

At the heart of the dispute lies more than $500 million in securities spread across 11,000 customer accounts. Questions over ownership had threatened to spiral into drawn-out litigation, but counsel for both the debtor and the committee told the court they struck an “agreement in principle.”

Linqto attorney Samuel Schwartz confirmed that the committee agreed not to challenge ownership, while the debtor pledged to design a Chapter 11 plan ensuring customers could reclaim securities in kind.

Committee counsel Robert Stark emphasized why this mattered:

“It is not what they thought they would be getting in their arrangement, and it should not be what they’re getting coming out,” he said, warning against simply liquidating securities for cash.

SEC Probe and FTX Comparisons

Linqto filed for bankruptcy July 7 amid an SEC investigation and internal concerns that customers were misled about the true nature of their holdings. The company’s collapse immediately drew parallels to the cryptocurrency giant FTX.

But Stark made clear this case must not follow FTX’s drawn-out, resource-draining path. Unlike FTX, which offset its expenses with soaring crypto valuations, Linqto lacks that luxury. “We want to avoid that gamble,” Stark said.

Both sides plan to bring in an asset manager to oversee accounts until distributions are complete. Non-account creditors will depend on litigation proceeds and sales of Linqto’s remaining assets, including a $16 million reserve fund.

Asset Sales and Court Approval

On Tuesday, Judge Perez also approved a process to sell Linqto’s securities, with the committee and U.S. Trustee’s Office guaranteed five days’ notice before any transaction. The motion faced pushback from shareholder Sapien Group, which argued ownership evidence was lacking.

Judge Perez acknowledged the gaps but framed the order as merely “the first step.” Stark assured the court a “full vetting” of proposed sales would follow.

Counsel Roster

• Linqto: Gabrielle A. Hamm, Veronica A. Polnick, Renee D. Wells, Athanasios E. Agelakopoulos, and Samuel A. Schwartz of Schwartz PLLC.

• Committee: Ryan C. Wooten, Mark P. Franke, Brandon D. Batzel of Orrick Herrington & Sutcliffe LLP, and Robert J. Stark, Jeffrey L. Jonas, Kenneth Aulet, Stephen D. Palley, and Stephen A. Best of Brown Rudnick LLP.

• Sapien: Aaron M. Guerrero and Bryan Prentice of Bonds Ellis Eppich Schafer Jones LLP, plus Sandford L. Frey, John M. Steiner, Kristin Anders Lawson, and John D’Ercole of Leech Tishman.