Is Worthy a Scam? An Evaluation of Worthy Bonds

Worthy is a financial platform offering investment opportunities through Worthy Bonds. This article provides information to help assess the platform’s operations and address common concerns about its reliability. It examines how Worthy Bonds are structured and managed, covering key operational aspects and regulatory compliance.

What are Worthy Bonds

Worthy Bonds are asset-backed bonds issued by Worthy, offering investors a fixed interest rate. They represent an investment in underlying assets, primarily small business loans and real estate development projects. Proceeds fund loans for American businesses, including property infrastructure and affordable housing. This structure connects individual investors with opportunities often reserved for institutional investors.

Each bond is purchased in $10 increments, making them accessible. They offer a consistent 7% annual yield, compounded daily, which contrasts with fluctuating market returns. While initially having a 36-month term, newer offerings like Worthy Property Bonds allow indefinite holding.

How Worthy Operates

Worthy generates returns for its bondholders by lending the capital raised from bond sales to businesses, primarily through secured, asset-backed loans. Initially, these loans were often secured by inventory or commercial receivables of small businesses. More recently, Worthy has shifted its focus to originating loans for real estate developers and property projects, using the real estate itself as collateral. This strategic shift was implemented to reduce risk, as the company had experienced some loan defaults in the small business sector.

The company operates by earning a spread between the interest rate it charges to its borrowers and the interest rate it pays out to bondholders. For instance, Worthy might lend funds at a higher rate to real estate developers, while paying a fixed 7% annual yield to its investors. To mitigate risk, Worthy limits its loans to a conservative percentage of the collateral’s value, such as approximately two-thirds of inventory or 60% loan-to-value for real estate. A portion of the bond proceeds may also be diversified into other investments, including U.S. Treasury securities and certificates of deposit, to enhance portfolio stability.

Key Aspects of Worthy Bonds for Investors

Worthy Bonds offer a 7% annual percentage yield (APY), with interest compounding daily. Investors can begin with a $10 minimum investment. Worthy does not charge transaction, monthly, or annual advisory fees. Investors can access their funds at any time without early withdrawal penalties.

However, some older bond series, such as Worthy Peer Capital and Worthy Community Bonds, have experienced temporary redemption delays due to illiquidity in their underlying loan portfolios. While these bonds continue to accrue interest, their immediate liquidity has been impacted, with Worthy stating efforts are underway for recovery and parent company support.

Investment limits apply, especially for non-accredited investors, who are restricted to investing no more than 10% of the greater of their annual income or net worth. A general cap of $50,000 applies for online purchases across all investor types. Worthy Bonds are not insured by the Federal Deposit Insurance Corporation (FDIC).

Evaluating Worthy’s Credibility

Worthy’s bonds are qualified by the Securities and Exchange Commission (SEC) under Regulation A+. SEC qualification means that Worthy has met specific disclosure requirements, allowing them to offer securities to both accredited and non-accredited investors. This regulatory status provides oversight, as it necessitates the filing of offering circulars and annual reports with the SEC, which are publicly accessible. However, SEC qualification does not equate to an endorsement or guarantee of investment performance by the SEC.

Operational transparency is demonstrated through these required filings, which detail the company’s financial health and business model. Worthy also states that it undergoes independent annual audits to ensure compliance. The company’s track record includes paying interest to bondholders and processing a significant volume of principal and interest payments. Nevertheless, the temporary redemption delays experienced by holders of older bond series, such as Worthy Peer Capital and Worthy Community Bonds, represent a deviation from the stated “funds available anytime” policy. Worthy has attributed these delays to illiquidity in underlying loan portfolios, stemming from economic factors and borrower struggles, and has communicated ongoing collection efforts and potential parent company financing to address these issues.

Financial scams often promise unrealistic returns, lack regulatory oversight, and exhibit high-pressure sales tactics. Worthy, conversely, is regulated by the SEC, publicly discloses its business model, and explains how it generates returns through lending. While the 7% APY is higher than many traditional savings accounts, Worthy explains this through its lending spread.

The company also clearly states its bonds are not FDIC insured, highlighting a known investment risk. The transparency around redemption delays, while challenging for affected investors, indicates a different operational approach compared to fraudulent schemes that typically cease communication.