Our law firm is getting calls from people that invested in Sierra Income Corporation, a non-traded business development company (BDC). In 2019 there was a merger with Medley Capital, income, but for original investors who paid at or near $10.00/share for Sierra Income, there are currently significant investment losses to consider.
Unfortunately, Sierra Income Corp suffered losses shortly after its announced merger with Medley Capital Corp. and Medley Management Inc., which was terminated due to Covid-19. Since then the net asset value plummeted Sierra’s portfolio companies operate on a very unknown future.
Many investors purchased Sierra Income and similar risky, complex, non-traded REIT investments through LPL Financial and other independent broker-dealers. We help investors nationwide. Please contact us at 1-800-856-3352 or email us at [email protected].
Sierra suspends distribution reinvestment in build-up to merger with Barings BDC
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Non-traded business development company (BDC) Sierra Income Corporation (Sierra) announced its plans of merging with Barings BDC Inc. (NYSE: BBDC), a publicly-traded BDC, a few days back. Q1 of 2022 has been set as the target date for completion of all related formalities, including approval of shareholders of both companies. The combined entity will hold around $2.2 billion of investments.
Of this, Sierra’s portfolio of investments is valued at $631.4 million. This is as of 30th June 2021. Its investment targets are first lien senior secured debt and the second lien secured debt. The subordinated debt of middle-market companies in a range of industries with annual revenue between $50 million and a billion dollars has also been a preferred investment of Sierra.
The planned merger has resulted in some changes in Sierra’s operations. Its distribution reinvestment plan, for instance, has been suspended. The result is that after the September 2021 distribution, all distributions will be paid out in cash to shareholders, till further notice. The share repurchase program, as well as their repurchases in connection with death and disability, also stand suspended, effective the beginning of September.
Sierra Income Corp Share Value
For one thing, Sierra Income sales were promoted by financial advisors and broker-dealer firms based on their financial incentives. Up-front fees and commissions were in the 10% range. Most investors we have spoken to had no idea that only 90% of the funds they were investing were actually getting invested let alone the known and unknown risks.
Investors failed to fully understand Sierra’s investment objective as an alternative asset management firm.
In comparison, approximately 7% was used for sales commissions, and a dealer management fee of 2.75% was also embedded as incentives for selling this product to investors.
While the impact of Covid-19 remains to be seen, the current sponsor stated value reported on investor account statements for Sierra is $5.78/share, and it represents an approximately (-40%) decline from the original value.
In reality, Sierra Income, according to at least one secondary market source (Central Trade and Transfer), suggests investment losses may be far more significant as current buyers are only paying in the $2.15/share to $2.40/share range, representing an over (-75%) loss for some investors. Most people would agree that this is a failure from an operational and financial performance.
Many investors purchased Sierra Income and similar risky, complex, non-traded REIT investments through LPL Financial. We help investors nationwide. Please contact us at 1-800-856-3352 or email us at [email protected].
LPL Financial Stops Selling Sierra Income
LPL Financial LLC, with over 16,000 representatives, is one of the largest broker-dealers. Now, in light of Covid-19, firms including LPL Financial have elected to temporarily halt sales of Sierra Income and similar products to investors. LPL Financial LLC, according to FINRA Brokercheck, has 236 separate disclosures (176 of them regulatory disclosures, several specifically relating to sales of non-traded REITs:
- 2013 fine by Massachusetts state securities regulators
- 2014 Financial Regulatory Authority (FINRA) Acceptance, Waiver, and Consent (AWC) (neither admitting nor denying the allegations) included a fine after allegations related to non-traded REIT transactions and inadequate supervisory procedures.
- 2015 New Hampshire state securities regulators issues
- 2015 an (AWC) that neither admitted nor denied the allegations, which related to (among other issues) sales practice issues of non-traded REIT investments. Fine of $10 million.
- 2016 state securities regulators in Montana, Hawaii, Louisiana, Wyoming, Oklahoma, Oregon, South Carolina, Arkansas, Ohio, Tennessee, Wisconsin, U.S. Virgin Islands, Kentucky, Alabama, North Dakota, Kansas, Washington, California, Colorado, Florida, Iowa, Michigan, Minnesota, Nebraska, Georgia, Idaho, Mississippi, Puerto Rico, New Mexico, South Dakota, Indiana, Texas, Alaska, Missouri, Utah, Pennsylvania, Nevada and in the State of Maryland (as part of a multistate task force investigation with the North American Securities Administrators Association, Inc. (NASAA) regarding the sales of non-traded REITs. LPL Financial neither admitted nor denied the findings of fact and conclusions of law contained in a Consent Order.
- 2017 New Jersey state securities regulators alleged failure to properly supervise sales of illiquid alternative investments to customers, including non-traded REITs and non-traded BDCs.
- In 2017, another regulatory disclosure involved the State of Virginia, Maine, and the State of Vermont.
- 2018 sales of non-traded REITs and related issues with the North Carolina District of Columbia.
Sierra BDC, Medley Management Inc, Non Traded BDCs Problems
Sierra Income and other non-traded BDCs are typically viewed as “high-risk” investments and recommendations of these investments, specifically for retirees. Financial advisors that sold Sierra Income and similar products are having complaints filed against them.
One of the issues with the non-traded BDCs is that they are illiquid. Investors don’t know that they can’t be sold on the exchanges until they try to get rid of them. The Securities and Exchange Commission (SEC) has warned about these types of investments.
According to the Financial Industry Regulatory Authority, Inc (FINRA), the prospectuses and Subscription Agreements for many of the securities indicate they were/are not suitable for investors who require access to liquidity, a guaranteed income, and they were only appropriate for those investors who can handle a substantial loss of their investment.
Many financial advisors sold these types of investments despite being high-risk investments and presented them as relatively conservative income-producing investments.
Lien senior secured debt
Senior debt is secured often by collateral on which has been placed a first lien. This usually covers all assets of a company and is often used to fund revolving credit. This debt is eligible for priority repayment during a liquidation.
Investing and managing capital
Sierra operates under the Investment Advisers Act of 1940. It is managed investment adviser registered, SIC Advisors LLC. Sierra was marketed to both retail and retail and institutional investors despite the fact it was an alternative investment product under federal securities laws.
Sierra Income Corporation Lawsuit
Investors may be able to recover Sierra Income losses through a FINRA claim. FINRA claims are often one-way; investors can potentially recoup their losses in these types of investments. The customer dispute process at FINRA is fast, private, and easier than traditional lawsuits. Also, there are not usually depositions because it is a paper-based discovery.
The reality is that these types of investments are complex, and many financial advisors may not fully comprehend all the intricacies, conflicts, or investment risks. Regulators have raised issues regarding investments, which has caused many broker-dealers to stop selling these investments.
If you are an investor that purchased Sierra Income or non-traded BDCs and you have suffered losses, you should consider your potential options for recovering your investment losses.
We help investors nationwide. Please contact us at 1-800-856-3352 or email us at [email protected].