YieldStreet Law Firm Financing VII: A 6-Year Saga Ending in Default
A $15M “senior secured” loan to a class action law firm — how I lost $87,742 over 6.5 years
The Numbers
| Invested | $250,000 |
| Returned | $162,258 |
| Net Loss | ($87,742) |
| MOIC | 0.65x |
| IRR | (10.28%) |
| Holding Period | 2,355 days |
| Target Term | 36 months |
The Investment
On March 29, 2018, YieldStreet announced Law Firm Financing VII — a $15 million senior secured term loan to a New York-based class action law firm. The deal filled in minutes. I committed $250,000.
The pitch was compelling:
- 12.75% target interest rate over 36 months
- Senior secured first lien — the highest priority in the borrower’s capital structure
- Backed by the firm’s entire case portfolio — 22 legal cases, mainly securities and antitrust class actions
- Low loan-to-value ratio — 4.3% to 5.9% based on projected case revenues of $253M-$345M
- Experienced originator — Counsel Financial, with $1.6B+ originated in law firm lending
- Full recourse personal guarantee from the firm’s partners
The originator (Counsel Financial) already had a $64M subordinated line of credit with the borrower. YieldStreet’s $15M loan sat ahead of that — senior secured, first lien. What could go wrong?
What Went Wrong: A Timeline
| Date | Event |
|---|---|
| Mar 2018 | YieldStreet raises $15M in minutes; I invest $250K |
| Apr 2018 | Investment goes active at 12.75% target rate |
| Dec 2019 | First distribution — $21,366 (interest payment) |
| Mar 2020 | Original loan maturity — borrower fails to repay |
| 2020 | COVID-19 closes courts; case dockets backlog |
| Mar 2021 | Target investor maturity — still in workout |
| 2020-2022 | YieldStreet makes $4.2M in “protective advances” to keep firm operating |
| Jun 2022 | RESTRUCTURING — ~50% principal returned; YS SPV becomes junior to new senior lender |
| Jul 2022 | Major distribution — $125,531 (partial principal return) |
| Sep 2022 | Small distribution — $3,912 (case settlement) |
| May 2023 | Small distribution — $3,991 (case settlement) |
| Oct 2023 | Investment re-designated to “Default” status |
| Q4 2023 | Borrower’s cash dwindles to <$750K; considering bankruptcy |
| Q1 2024 | Borrower’s largest case dismissed; firm down to 5 attorneys |
| Q1 2024 | YieldStreet sells junior note to senior lender |
| Sep 2024 | Final distribution — $2,276 |
| 2024+ | Only potential recovery: life insurance policies (8 years remaining) |
Distribution History
| Date | Amount | Note |
|---|---|---|
| Dec 5, 2019 | $21,366 | Interest payment |
| Jul 27, 2022 | $125,531 | ~50% principal (restructuring) |
| Sep 27, 2022 | $3,912 | Case settlement |
| May 26, 2023 | $3,991 | Case settlement |
| Sep 20, 2024 | $2,276 | Final distribution |
| Total | $162,258 | 65% recovery |
The Restructuring Trap
In June 2022, after 2+ years of default and $4.2M in protective advances, YieldStreet agreed to a restructuring:
- Investors received ~50% of principal back (~$7.5M total)
- YieldStreet’s remaining position became a $12M subordinated 3-year promissory note
- The SPV’s position was now junior to a new senior lender
- Future distributions tied to case settlements — “event-based”
The catch: What started as “senior secured first lien” became junior subordinated debt. The very protection that made this investment appealing was negotiated away in the restructuring.
The Final Exit
By early 2024, the law firm was in terminal decline:
- Down to just 5 attorneys, 2 paralegals, and 2 support staff
- Cash on hand below $750K — couldn’t make payroll
- Largest case dismissed by the court
- Two years of projected negative cash flows
- Actively engaging bankruptcy counsel
YieldStreet made a pragmatic decision: sell the junior note to the senior lender rather than fight for scraps in bankruptcy. The deal:
| Component | Value |
|---|---|
| Cash upfront | $350,000 |
| Accelerated case settlement payments | $250,000 |
| Life insurance policy rights | TBD (8 yrs remaining) |
Result: 66% cash-on-cash return — but that’s 66% of a $250K investment, meaning $162K back on $250K invested. A 35% loss.
The K-1 Confirms the Loss
My 2024 K-1 from YS CF LawFF VII LLC shows:
- Current year net income (loss): ($66,112)
- Beginning capital account: $121,301
- Withdrawals and distributions: ($2,276)
- Ending capital account: $52,913
The $66,112 loss write-off reflects my share of the SPV’s losses when they sold the junior note. The remaining $52,913 “capital account” represents my claim on the life insurance policies — which may pay out in 8+ years, or never.
Why “Senior Secured” Didn’t Protect Me
1. Seniority can be restructured away. When the borrower defaulted and needed restructuring, YieldStreet had to accept junior status to get any capital back. The new senior lender demanded first priority.
2. The collateral was illiquid. Law firm case portfolios can’t be sold quickly. You can’t foreclose on pending lawsuits the way you can on real estate. Recovery requires waiting for cases to settle.
3. Protective advances diluted the position. YieldStreet advanced $4.2M to keep the firm operating. These advances (which came from YieldStreet, not investors) had to be repaid before investors saw returns, further subordinating our position.
4. Personal guarantees are worthless if guarantors are broke. The partners’ personal guarantees meant nothing when the firm collapsed. You can’t squeeze blood from a stone.
5. Case outcomes are binary. When the firm’s largest case was dismissed, collateral value dropped materially. Litigation portfolios are concentrated bets on unpredictable legal outcomes.
What I Learned
“Senior secured” is marketing language. In a restructuring, seniority can be negotiated away. The legal priority that made the investment attractive can disappear when the borrower is in distress.
Law firm lending is litigation finance with extra steps. You’re still betting on legal case outcomes. But instead of direct exposure to a single case, you’re exposed to a portfolio of cases — and also to the firm’s operational risk.
36-month terms can become 6+ year nightmares. The target maturity was March 2021. I’m writing this in 2025, and there’s still theoretical value in life insurance policies that won’t pay out for years (if ever).
High-interest rate ≠ high risk-adjusted return. 12.75% sounded great in 2018. But a -10.28% IRR over 6.5 years is what I actually got. The interest rate didn’t compensate for the default risk.
Platform diversification matters. This was my largest YieldStreet investment. When it defaulted, it dragged my overall platform IRR negative (-2.62% across all YieldStreet investments).
COVID was a convenient excuse, but not the root cause. Yes, court closures delayed case resolutions. But the firm was already struggling before the pandemic. The case portfolio’s projected revenues were always speculative.
The Remaining Hope
Technically, this investment isn’t fully resolved. YieldStreet retained rights to the partners’ life insurance policies:
- 50% of the first policy
- 25% of the third policy
- Eight years remaining on each policy
If the policies are triggered (i.e., if the partners die), there could be additional distributions. YieldStreet originally estimated up to $7.5M if all policies paid out.
I’m not counting on it. Waiting for someone to die is not an investment thesis. I’ve written this off as a loss.
Final Accounting
| Initial investment | $250,000 |
| Total distributions received | $162,258 |
| Net loss | ($87,742) |
| Target term | 36 months |
| Actual holding period | 78+ months |
| Target interest rate | 12.75% |
| Actual IRR | (10.28%) |
This was my second YieldStreet investment. $250,000 committed in April 2018, chasing 12.75% returns from a “senior secured” law firm loan. 6.5 years later, I got 65% back. The remaining value sits in life insurance policies that may never pay. Some lessons cost $87,742 to learn.
