How to judge fraud-bankruptcy recovery: Linqto's market-value test

In a fraud bankruptcy, the useful number is what the estate can distribute. Linqto's bankruptcy exit from Chapter 11 shows why.

Founders and investors in pre-IPO investing who evaluate a startup that holds customer-linked securities need a cleaner benchmark for fraud recovery than the platform's survival. The estate-versus-claims line sets the limit. Current market value sets the realistic payout.

Say you hold a position. When the estate can pass through most of current market value, the number that matters is the current worth, not the amount you paid. That distinction changes how you read a recovery.

The test works best when you separate three questions: what is still a security, what is a cash claim, and what date anchors the market value.

The estate line sets the limit

A fraud bankruptcy starts from what the estate controls, what creditors claim, and what the court allows to move. The customer's original cost is a starting point. The estate's distributable value is the working number.

Linqto's case began with a July 7, 2025 filing, and the Southern District of Texas bankruptcy court confirmed the First Modified Plan on October 22, 2026. The plan became effective on October 27, 2026, after the company replaced a liquidating trustee that had refused to serve.

The timing matters because a plan can preserve security entitlements while the market moves. A security entitlement can track value. A dollar claim depends on cash available to the estate.

A plan can change how customers receive value. It can keep a position in securities, move it into a fund, or convert it into a claim for cash. You need to know which path applies before choosing a benchmark.

Run the three-point recovery test

Use the test in order. It turns a messy case into a checklist you can apply to your own exposure.

1. Identify customer-linked securities and their current market value. Done looks like a list of each security, the quantity held, and the current price. The value of Linqto's customer-linked securities climbed from $657 million in June 2025. By May 2026, it reached $1.3 billion. Start with the plan documents, the allocation notice, and the current price feed. Use the exchange price for a listed security, or the latest credible valuation available to the estate for an unlisted one.
2. Map whether entitlements are preserved as securities or converted to dollar claims. Done means a statement of what you own: a security position, a cash claim, or a mix. A plan settlement approved on February 6, 2026 preserved Linqto customers' entitlements to securities that had not been converted into dollar claims. Look for language that keeps the position as a security entitlement. Look for language that converts it into a claim for a dollar amount. The label decides whether you track a market or wait on estate cash.
3. Benchmark recovery against current market value and watch trustee or dead-man-switch deadlines. The output is a payout estimate tied to market value, not original cost. Linqto customers were expected to recover about 90% to 92% of the then-current market worth of their investments, rather than merely the original amount invested. Use the same date for the market value and the expected payout. Note any later date the estate uses, and compare a fund interest to the underlying portfolio.

The allocation choice matters. Under the confirmed plan, Linqto customers could allocate their claims to a closed-end fund managed by VanEck, an asset manager, a liquidating trust, or a mix of the two. A combination can be useful when one path is faster and the other preserves upside.

The warning sits in the third step. Benchmarking against what you paid misreads a rising portfolio, while benchmarking against what the estate can pay shows the real recovery.

People go wrong when they treat the original investment as a minimum. A rising portfolio can produce a larger recovery, and a falling portfolio can produce a smaller one. Put the benchmark date and the payout path in the same note.

Watch the exit mechanics

Recovery can stall at the trustee step. The designated liquidating trustee, Forge, told Linqto on July 15 it would not take the job, citing demands from Schwab. The refusal showed why the trustee step needs watching.

A trustee refusal can delay effectiveness. A replacement can restore the timeline. Track both the legal and operational status of the plan.

Deadlines are part of the benchmark. A preserved security can move with the market. A converted dollar claim depends on estate cash. Your job is to know which one you hold before you estimate recovery.