Investors in Terra Income Fund 6 (“Terra 6”) 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 Terra 6 without a reasonable basis, or misled the investor as to the nature of the investment. Terra 6 is a non-traded business development company headquartered in Kansas City, Missouri. Formed on May 15, 2013 and commencing operations on June 24, 2015, Terra 6 is a non-traded business development company (“BDC”).
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 “Mom and Pop” investor.
While non-traded BDCs may offer an attractive investment opportunity for certain investors, non-traded BDCs, such as Terra 6, are 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 often entail high up-front fees and commissions (typically 10% or more in the aggregate), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager. Finally, although they are frequently sold as steady income investments, non-traded BDCs do present the risk of loss of principal.
Shares of Terra 6 originally sold for up to $12.50 per share. However, the most recent net asset value (“NAV”) announced by the BDC’s sponsor was $9.16 per share. Further, the actually realizable value of non-traded investments like Terra 6 may be substantially lower than the estimated NAV. Further, Terra 6’s NAV was calculated as of December 31, 2019 and may subsequently have been negatively impacted by the COVID-19 pandemic.
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 a non-traded BDC or another similar illiquid “alternative investment product” such as a non-traded REIT or equipment leasing fund, 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. 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).
This article is intended as ATTORNEY ADVERTISING and is not an official announcement from Terra 6 or FINRA.