Investors in VII Peaks Co-Optivist Income BDC II (“VII Peaks BDC”) may 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.
In 2021, the Securities and Exchange Commission (“SEC”) announced settled charges against investment adviser VII Peaks Capital, LLC (“VII Peaks Manager”) and its co-owner and managing member, Gurprit Chandhoke (“Chandhoke”), for breaching their fiduciary duty by engaging in transactions that benefitted themselves to the detriment of VII Peaks BDC, a business development company (BDC) managed by VII Peaks Manager.
According to the SEC’s order, from late 2015 through 2017, VII Peaks Manager and Chandhoke breached their fiduciary duty to VII Peaks BDC by engaging in transactions that were not disclosed to or approved by the Board of Directors of the BDC. The SEC charged that VII Peaks Manager collected over $722,500 in due diligence fees for loans made by the BDC to various portfolio companies, even though the loan documentation said that the fees belonged to the BDC. The SEC also charged that VII Peaks and Chandhoke caused VII Peaks BDC to make loans to portfolio companies in order to generate the fees for themselves.
Without admitting or denying the SEC’s findings, VII Peaks Manager agreed to a cease-and-desist order and to pay disgorgement of $722,500, prejudgment interest of $123,199, and a civil penalty of $185,000, while Chandhoke agreed to an associational suspension, investment company prohibition, and penny stock suspension, all for a period of twelve-months.
VII Peaks Manager, an investment management firm based in Orinda, California, reportedly invests primarily in discounted corporate fixed income securities and employs a “co-optivist” TM (co-operative activism) approach where they act as cooperative, activist investors who work with senior management teams of target companies to proactively restructure their outstanding corporate debt.
VII Peaks BDC is now reportedly in the process of liquidating its assets, after which liquidation the BDC will provide an uncertain sum of cash proceeds to shareholders. SEC filings indicate that the public offering price of VII Peaks BDC started at $10.15 per share but the offering price was later reduced to as low as $8.75 per share in May 2016 due to the net asset value of the fund’s common stock being reduced. As of year-end December 2017, the net asset value per share was reportedly $5.31, suggesting that investors in VII Peaks BDC have lost substantial principal.
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). In addition, non-traded BDCs have high up-front fees (typically as high as 10%), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.
BDCs have been around since the early 1980’s, when Congress first enacted legislation amending federal securities laws allowing for BDCs — which are simply types of closed-end funds — to make investments in developing companies and firms that would otherwise have difficulty accessing financing. In light of a BDC’s leveraged structure and its typical investment portfolio, however, uninformed investors may come to learn too late that their investment carries considerable risk. Moreover, non-traded BDCs such as VII Peaks BDC carry additional risks, including their lack of liquidity and high upfront fees and commissions.
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, 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).
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