If your broker recommended you invest in FS Investment Corporation II, you may have a legal claim to recover losses you have suffered.
FS Investment Corporation II, formerly known as Franklin Square investments is a business development company designed to provide high levels of current income secured loans of middle-marked private U.S. companies. FS Investments started as Franklin Square capital in 2007 with the goal of providing it’s investors with access to “alternative sources of income and growth historically available only to large institutions and the wealthiest individuals.”
A Business Development Company (BDC) is an organization that invests in small and medium-sized companies as well as companies in distress. A BDC helped small and medium-sized groups grow in the beginning stages of their development. For example, with a distressed company, a BDC may help the company regain sound financial footing.
At the end of 2019, four different BDCs (FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and Corporate Capital Trust II) merged together. The entity began trading on the New York Stock Exchange in June 2020, the company said it was looking to take advantage of disruptions in the market caused by the Coronavirus pandemic.
In June 2020 the merged entities (FSKR) implemented a 4 to 1 reverse split of shares of its common stock, resulting in every four shares of FSKR common stock issued and outstanding were automatically combined into one share of FSKR common stock. The number of outstanding shares reduced from approximately 691.2 million to approximately 172.9 million. Adjusted to give effect to the reverse stock split, the net value per share of FSKR as of March 31, 2020, would have been $24.68 instead of $6.17 per share. FSKR shares were listed on the New York Stock Exchange in mid-June 2020.
Mergers like this one may affect shareholders. Companies will often merge as part of a strategy to boost shareholder value by creating new business lines and/or gaining greater market share. However, factors like the economy at the time of the merger and the size of the companies merging play a part in future returns. Shareholders may experience a loss of voting power, and though a spike in trading volume tends to inflate share prices, if the economy is not favorable at the time of the merger, shareholders may end up seeing significant losses.
Investments in FS II were not suitable for all investors. Advisors who recommended their clients to invest in FS II or other similar investments may be liable for losses suffered by the clients. Under the FINRA Rules brokers and advisors are required to conduct reasonable due diligence and are only permitted to recommend investments that are suitable for the client’s risk tolerance and needs. Further, brokers are required to fully and accurately describe the risks and rewards of the investments they offer. Thus, brokers who misrepresent the investments, or recommend unsuitable investments may be liable for losses suffered.
If your advisor recommended FS II, you may have a legal right to bring a claim 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. You can contact attorney Michael Bixby directly at Mbixby@levinlaw.com to discuss your potential claim, or fill out an evaluation form or give us a call and we will provide a complimentary review of your potential claim.
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