Investors in Business Development Corporation of America (“BDCA”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if a broker or financial advisor made the recommendation to invest in BDCA without a reasonable basis, or misled the investor as to the nature of the investment. BDCA is a non-traded business development company headquartered in New York, New York. As a business development company (“BDC”), BDCA focuses on providing flexible financing solutions to various middle market companies, including first and second lien secured loans and debt issued by mid-sized companies.
As an investment vehicle, BDCs first emerged in the early 1980’s following legislation passed by Congress making certain amendments to federal securities laws. These legislative changes allowed for BDC’s — types of closed end funds — to make investments in developing companies and firms. Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to earn enhanced dividend income while participating in private-equity-type investing previously unavailable to the average retail investor.
While BDCs may arguably offer an attractive investment opportunity, non-traded BDCs, such as BDCA, are very complex and risky investment products. Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market). Further, non-traded BDCs such as BDCA have high up-front commissions and fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.
As of September 30, 2016, BDCA reported a net asset value (“NAV”) of $8.58 per share, which is $0.39 lower than the NAV as of December 31, 2015. Moreover, the share repurchase program for BDCA is oversubscribed and repurchases of shares are only made semi-annually (or twice per year). Therefore, it is unlikely that an investor in BDCA will be able to redeem their entire investment through BDCA’s repurchase program. For example, as of December 2016, 17 million shares were submitted for tender. However, BDCA purchased only 6.7 million of these shares.
With respect to secondary market liquidity, one secondary trading platform recently listed shares of BDCA for only $6.49 per share. For investors who wish to sell out of BDCA through the secondary market, it appears they will sustain considerable losses on their initial capital investment in order to exit their illiquid investment position.
Before recommending a nonconventional investment product to a customer, such as a non-traded BDC, broker dealers are first required to perform adequate due diligence on that investment. In addition, brokers and broker dealers are required to perform a suitability analysis, in order to determine if the investment product is suitable for that investor based on his or her age, risk tolerance, net worth and income, investment experience, etc.
If you have invested in BDCA, or another similar illiquid ‘alternative investment product’ and you have suffered losses in connection with your investment (or are currently unable to exit your investment position without incurring losses), you may be able to recover your losses in FINRA arbitration. Investors 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.