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The Law Office of Jeffrey M. Haber Investigates Brokerage Firms Selling Non-traded Business Development Companies (“BDCS”)

  • Posted on: Sep 10 2016

New York, N.Y.  – September 10, 2016 – The Law Office of Jeffrey M. Haber (the “Firm”) has commenced an investigation into potential securities and regulatory violations related to the sale of BDCs following the issuance of a Targeted Examination Letter that the Financial Industry Regulatory Authority (“FINRA”) sent to member brokerage firms.

Congress created BDCs to stimulate investments in privately-owned U.S. companies. They are closed-end funds that invest in a company’s debt (loans) or equity with the goal of generating income, capital growth or both. BDCs are registered with the Securities and Exchange Commission and regulated under the Investment Company Act of 1940.

Investing in BDCs carries risks.  Among them are: limited liquidity; a redemption plan that is subject to suspension, modification and/or termination at any time; liquidations at less than the original amount invested; distributions that are not guaranteed in frequency or amount and may be paid from sources other than earnings; limited operating history; reliance on the broker or advisor; conflicts of interest; and payment of substantial fees to the broker or advisor and their affiliates.

In light of these risks, non-traded BDCs are not suitable for all investors. Suitability standards generally require an investor to have either a net worth of at least $250,000, or a net worth and an annual gross income of at least $70,000. Additionally, an investment in BDCs should be based on the investor’s investment goals and strategies.

In the Examination Letter, FINRA said it is requesting a list of BDCs offered by FINRA members as well as a list of the brokers who have selling agreements with each BDC. In addition, FINRA is seeking a copy of the firms’ due diligence procedures for evaluating the BDC and participating brokers.  The information request covers the period from Jan. 1, 2015, through June 30, 2016.

The Firm is investigating whether brokers placed investors in BDCs when such investments were not suitable for them, as well as whether the brokerage firms failed to supervise their brokers in conjunction with these investments.

Among the non-traded BDCs that the Firm is investigating include: Carey Credit Income Fund; HMS Income Fund; Franklin Square Energy and Power Fund; Nextpoint Capital Fund; Sierra Income Corporation; and CNL Corporate Capital Trust.

Investors who purchased BDCs and have questions about their investments or information relating to this investigation are encouraged to contact Jeffrey M. Haber, Esq. at (212) 209-1005, info@jhaberlaw.com, or www.jhaberlaw.com.

About the Firm:

The Law Office of Jeffrey M. Haber is dedicated to representing corporations, small businesses, partnerships and individuals involved in a broad range of complex business and commercial litigation matters and violations of the securities laws. Mr. Haber combines the sophistication and counsel of a large national law firm with the economy, flexibility, commitment and personal attention of a small firm.

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