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The Business Development Corporation of America (BDCA) was a speculative and high risk closed-end management investment company which was structured as a business development company. If you were recommend to invest in BDCA by your broker or advisor, you may have a right to bring a claim to recover your losses.
Typically Business Development Companies (BDCs) are not publicly traded or listed on public exchanges. According to the SEC, BDCs “are a category of closed-end funds that are operated for the purpose of making investments in small and developing businesses and financially troubled businesses.” The sponsor of the BDC typically sells a limited partnership share at $10/share (though BDCA had a public offering price of $11.20 per share), but the sponsor deducts substantial amounts of the investment made to pay for offering costs. The sponsor then invests the remainder of the money in a financially troubled, developing, or small business opportunity. BDCA was structured as a non-diversified closed-end investment company, and engaged in specialty finance, making debt and equity investments in middle market companies. BDCA has been advised by Benefit Street Partners since 2016.
Investors who were recommended to purchase BDCA may have suffered significant loss to their invested principal. Recent secondary market trading data indicates that shares of BDCA have been sold for less than $5 per share, with some investors selling their shares on the secondary market for as little as $3.15 per share. Unfortunately, investments like BDCA are illiquid investments, and they may be extremely difficult or even impossible to sell at certain times as there may be little or no active secondary market. The shares of BDCA were not listed on an exchange and did not trade like a normal stock, bond or mutual fund. Retail investors had no effective way to independently judge or question the prices set by the sponsor or brokerage firm. The lack of oversight and secondary market creates a scenario that encourages inefficient and self-serving management that would otherwise not exist in a publicly traded market.
Investments in BDCs like the Business Development Corp. of America typically charged extremely high fees, up front and annually. This could explain why some Financial Advisors recommended investments in BDCA and other similar investments to their clients. For instance, the BDCA typically charged over 11% of upfront commissions and fees, meaning only 88.5% of the investors capital was actually used for an investment. Thus, in order to just obtain the principal back, the investor would need to experience a 13% return. However, the BDC also charged annual expenses on an ongoing basis, over 4.5% on the net assets of the BDC. Thus, even if the Fund had positive “returns” those returns could be entirely eaten up by fees and expenses. The substantial up-front and ongoing fees charged by BDCs are the result of serious conflicts of interest.
The BDCA was a speculative investment that had particular risks, and it only should have been sold and recommended by financial advisors to a narrow group of investors and only after the risks were fully disclosed. In fact, FINRA reminded brokers and advisors of their duty back in 2003, years before the BDCA was ever sold. In Notice to Members 03-71, FINRA reminded brokers and advisors that when selling non-conventional investments:
Given the unique nature of NCIs, these products may present challenges when it comes to a member’s duty to dispense its suitability obligation; however, the difficulty in meeting such challenges cannot be considered as a mitigating factor in determining whether members have met their suitability obligations. NCIs with particular risks may be suitable for recommendation to only a very narrow band of investors capable of evaluating and being financially able to bear those risks.
Our investigation has found numerous investors who were recommended the BDCA along with other illiquid, high fee, and high risk products to retirees and conservative or moderate investors. If your broker or advisor sold you BDCA or other similar investments, you may have a legal right to recover your losses. We represent investors on a contingency fee basis, meaning there are no upfront costs or fees to you. We may be able to file a FINRA Claim to recover damages you suffered due to the negligent or unsuitable recommendations from your broker.
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