Investors in FS Energy and Power Fund (“FSEP”) an have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.
FSEP was formed as a Delaware Statutory Trust in September 2010, and subsequently commenced its investment operations on July 18, 2011. Structured as a regulated investment company, or RIC, for federal tax purposes, FSEP qualifies as a business development company (“BDC”) under the Investment Company Act of 1940.
BDCs are in the business of providing various debt and mezzanine financing solutions for typically small and medium-sized businesses that cannot access credit in the same way as larger, more established companies. By providing credit solutions to less established companies, BDCs will frequently collect much higher than average interest income and seek to pass along such income to investors in the form of dividends.
While an investment in a BDC may seem like an attractive option for an investor seeking enhanced income, our office has all too frequently encountered situations in which money managers or brokers improperly recommended unsuitable “alternative” investment products to their clients, including such alternatives as non-traded REITs, as well as non-traded BDC’s such as FSEP.
Investors should understand that an investment in a non-traded BDC like FSEP carries many of the same risks associated with other non-traded investment vehicles. These risks include, but are not limited to, excessive front-end fees (as high as 10%) to the soliciting broker and his or her firm, in addition to liquidity issues. In fact, the Financial Industry Regulatory Authority (“FINRA”) has offered the following cautionary guidance in an effort to educate and inform investors of the liquidity concerns associated with investing in such an alternative investment product: “Due to the illiquid nature of non-traded BDC’s, investors’ exit opportunities may be limited only to periodic share repurchases by the BDC at high discounts.”
Investors who wish to sell out of their investment in FSEP are limited in their options due to FSEP’s illiquidity. Investors who purchased shares in FSEP at the initial offering acquired shares at $10 per share, but FSEP’s sponsor currently lists its estimated net asset value (“NAV”) of $6.09 per share. Even worse, shares on the limited secondary market have reportedly changed hands at between $4.75 and $4.65 per share.
Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).