Recently, FS KKR Capital Corp (NYSE: FSK) shares were down 6% on Tuesday, August 11, 2020, after the company announced weaker than expected quarterly earnings. The company reported $0.62 earnings per share for the quarter, missing the Thomson Reuters’ consensus estimate of $0.63 by ($0.01). FS KKR Capital Corp. (now “FSK”) is a business development company investing in corporate debt securities. It invests primarily in first lien senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans.
Many FSK investors, especially those who owned the prior non-traded business development company for several years are noticeably upset. When the upcoming June 2020 initial public offer was first announced, some investors were surprised to learn of a reverse 1 for 4 stock split that made it confusing for them to try to estimate how much of their original principal investment had declined in value. Nonetheless, many financial advisors who had little to say about the steady decline in the stated value for several years looked to the upcoming initial public offer as a positive event and expressed that to their clients.
Investor sentiment turned less positive when the $24.00+/share post-split share price was relatively short-lived and investors in short order learned their chares were going public at only $16.00/share. Following a June 2020 public offering that initially began at $16.00 per share, the value of the stock has declined further, at one point in the 413.00/share range.
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A number of firms recently initiated research coverage on FSK:
- Compass Point rating is “neutral”
- Janney Montgomery Scott “hold”
- ValuEngine “strong sell”
- JPMorgan Chase & Co. “neutral”
- Keefe, Bruyette & Woods “market perform”
- Overall two equity analysts have rated FSK a “sell”, five gave it a “hold” and two gave it a “buy” rating. The FS KKR Capital consensus rating is currently a “Hold”
The 50 day moving average for the FSK stock (which has only been trading publicly since June) is $14.94 and the stock has a beta of 1.53, suggesting it is more volatile than the S&P 500 index.
For investors who originally purchased the non-traded security at the original offer price at or near $10.00 per share, the current publicly traded price represents a substantial decline in their original principal.
If You Originally Purchased FS II or FS III as a Non-Traded REIT What Should You Do Now?
If you are an investor of FS II or FS III when it was a non-traded REIT investment and you were coaxed into purchasing your investment based on promises of a stable, conservative investment product with a steady income stream, or you received inadequate (or non-existent) risk disclosures about your investment, the risks of illiquidity or the lack of transparency and you have incurred losses you should consider your options and next steps.
You can “wait and see” but keep in mind that statute of limitations and other potential laws, rules, or regulations may impact not only your ability to bring a potential claim at a later date, there may also be a practical impact in terms of the value of any potential claim, if you choose a “wait and see” approach. Thus, as with many things, not making a decision here, could still be making a decision. Be careful in making this decision, as it could prove costly.
You can consider a class action or derivative action. There may or may not be cases against FSK, its principals, or other parties. Without getting into the potential allegations and merits of such a case, these are typically state or federal court proceedings and rules of civil procedure that will dictate the time needed and deadlines applicable to conduct the necessary discovery and set a hearing to determine whether or not class status will be certified by a court. Even then, that is essentially just the beginning of the case.
For some investors, the issue is FSK, and the extent of their damages is only now just being recognized. These issues then also involve the firm that supposedly conducted a thorough research and due diligence effort before making FS II or FS III available for sale, and then further failed in some cases to properly and adequately supervise the recommendations and sale of FS II or FS III non-traded investments to investor clients.
As non-traded business development company investments, the investment products were not safe or conservative. In fact, securities regulators considered them complex alternative investments that were difficult for most retail investors to understand. In addition to risks of illiquidity, and a lack of transparency, some investors never should have been sold these securities in the beginning, and still others should have been directed to sale or redemption opportunities along the way. A note here for senior, elderly and retired investors who purchased FS II, FS III, or FS KKR. Some recent cases involving the Financial Regulatory Authority (FINRA) regulators suggest that recommendations of risky, illiquid, complex alternative investments similar in nature and complexity to FS II, FS III, and FS KKR are not always appropriate for investors who may need liquidity and who (based on their age or circumstances) are not appropriately invested in long-term, risky, illiquid complex alternative investment products.
For some investors, a better option than “wait and see” or a potential class action, is a FINRA customer dispute private arbitration claim. These customer claims are private, confidential, and quicker and more efficient than court litigation. In addition, there are typically no depositions, as it is almost entirely paper-based discovery.
If you have experienced damages in these or similar types of investments, you should contact an experienced investment fraud lawyer who might be able to assist you with these types of claims.
About Haselkorn & Thibaut, P.A. (InvestmentFraudLawyers.com)
At www.investmentfraudlawyers.com, you will find the experienced law firm of Haselkorn and Thibaut, P.A. They are a nationwide law firm specializing in handling investment fraud and securities arbitration cases. The law firm has offices in Palm Beach, Florida, on Park Avenue in New York, as well as Phoenix, Arizona, Houston, Texas, and Cary, North Carolina. The two founding partners have over 45 years of legal experience and they lead an experienced group that includes former financial advisors, certified financial planner, former Wall Street bank and broker-dealer defense lawyers, and others.
Haselkorn & Thibaut, P.A. has filed numerous (private arbitration) customer disputes with FINRA for customers who suffered investment losses relating to issues similar to those matters mentioned above. There are typically no depositions involved, and those cases are typically handled on contingency with no recovery, no fee terms.
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