Securities Lawyers Blog
The securities lawyers of Gana Weinstein LLP are investigating investor losses in VII Peaks Co-Optivist Income BDC II (Peaks Co-Optivist) a business development company (BDC). According to the company’s SEC filings, Peaks Co-Optivist invests in discounted corporate debt, senior secured term loan and equity-linked debt securities of public and private companies that trade on the secondary loan market for institutional investors and provide distributions to investors. Peaks Co-Optivist seeks to actively work with the target company’s management to restructure the underlying securities and improve the liquidity position of the target company’s balance sheet. This strategy targets company management on average 24 months prior to a redemption event to create an opportunity for growth in the investments.
Because Peaks Co-Optivist in non-traded product there are no market pricing for the value of the securities. The company issued shares at a price of $10.15 per share but due to fees and commissions of $1.015 only $9.135 was used to make investments. Currently, the company claims that its shares are worth $8.75 per share. However, this is highly unlikely given that the company has financed most of its distributions through returning investor capital and currently has a distribution rate of only 2.23% annualized.
Our firm often handles cases involving direct participation products (DPPs), private placements, Non-Traded REITs, and other alternative investments. These products are almost always unsuitable for middle class investors. In addition, the brokers who sell them are paid additional commission in order to hype inferior quality investments providing perverse incentives for brokers to sell high risk and low reward investments.
According to studies, non-traded REITs and BDCs have historically have underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded products provide paltry investment returns considering the risk an investor takes. Alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.
However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. These products have become so popular among brokers without providing any benefit to investors that many states now limit investors from investing more than 10% of their liquid assets in BDCs. Many states impose these limitations because its understood that that they provide virtually no benefit to investors in relationship to their risks.
Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. The investment lawyers at Gana Weinstein LLP represent investors who have suffered investment losses due to allegations of wrongdoing. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.