Articles Tagged with Business development companies

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As we highlighted in a previous blog post, investors in FS Energy and Power Fund (“FSEP” or the “Fund”) may be able to recover losses on their investment in arbitration through arbitration before the Financial Industry Regulatory Authority (“FINRA”), if the recommendation to invest in FSEP was unsuitable, or if the broker or financial advisor who recommended the investment made a misleading sales presentation.  Headquartered in Philadelphia, PA, the Fund is structured as a non-traded business development company (“BDC”) that invests primarily in the debt of a portfolio of private U.S. energy and power companies.

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BDCs first emerged in the early 1980’s when the U.S. Congress enacted legislation that amended the federal securities laws.  These legislative changes allowed BDCs — which are a type of closed-end fund — to make investments in developing companies and firms.  BDCs are in the business of providing various debt and mezzanine financing solutions for small and medium-sized businesses that otherwise could not access credit in the same way as more established companies.

By providing credit solutions to less established companies, BDCs 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 frequently encountered situations in which financial advisors recommended unsuitable nonconventional investment products to their clients, including non-traded BDCs, such as FSEP.

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Investor lawyers say the Financial Industry Regulatory Authority (FINRA) found supervisory deficiencies related to investment concentration at leading independent broker-dealer LPL Finanical.    As a result of alleged unsuitable recommendations, FINRA has announced a penalty in the form of a $950,000 against LPL Financial.

Supervisory Failure Leaves LPL Financial with Heavy Fines

Alternative investments can include a variety of products, including oil and gas partnerships, hedge funds, non-traded real estate investment trusts (REITs), business development companies (BDCs) and other related categories.  Though LPL Financial set forth guidelines to manage investment concentration, FINRA reports that from January 2008 until July 2012, there was no internal effort to enforce these guidelines.  As a result, some clients may have received investment advice that resulted in levels of concentration that were excessive.

 If you suffered significant losses as a result of an unsuitable recommendation to purchase or over-concentrate your portfolio in non-conventional investments (whether from LPL or another stockbroker or financial advisor), you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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Securities fraud attorneys are investigating claims on behalf of customers of LPL Financial LLC. This move comes on the heels of an announcement on March 24, 2014 from the Financial Industry Regulatory Authority (FINRA) which stated that the firm had been fined $950,000 for supervisory failures related to alternative investment sales.

Unsuitable Alternative Investment Sales: LPL Customers Could Recover Losses

These investments included:

  • Non-traded real estate investment trusts, or REITs