Sierra Income Corporation is a non-traded business and development company that has suspended share repurchases after the previously announced review to assess strategic alternatives. Both the share repurchase program, as well as repurchases in case of death or disability, were suspended.
In June, AlphaBetaStock.com reported that Sierra’s board started a formal review process to evaluate strategic alternatives for the company, which can include the sale of the company’s assets, a listing on a national securities exchange, or a merger with another entity. The company did not provide any further information or a timeframe.
According to InvestmentFraudLawyers.com, there are multiple lawsuits against financial advisor advisors and brokerages that sold Sierra Income REIT. They have set up a toll-free number for investors to call to discuss investment loss recovery options at 1-800-856-3352.
Sierra is a non-traded company for business development. It invests primarily first lien senior secured and second lien secured bonds, and to a lesser degree, subordinated middle market debt. This includes a variety of industries with an annual revenue of between $50 million and $1B. As of June 30, 2021, the company manages an investment portfolio with a fair market value of $631.4 Million.
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Sierra Incomes sales were encouraged by financial advisors and broker-dealer companies based on their Financial Incentive Programs. Back-office fees and commission had ranges of 10% to 10%. Most investors who we spoke with did not understand how much of the funds invested actually got invested. Almost 7% of the sale commissions are also billed into dealers 2.75% allowing investors to profit from offering this product to investors in exchange.
The impact of Covid-19 remains to be seen. The current sponsor stated value reported on investors’ accounts for Sierra is $5.78/share and represents an approximately (-40 %) drop from the original value.
LPL Financial Stops Selling Sierra Income
LPL Financial is considered one of the largest brokerage firms in the world and is currently serving more than 6 million customers. LPL has 236 disclosures on the alleged sales of non-traded REIT companies. According to LPL the company also began selling Sierra Income and similar goods to investors as a result of Covid- 19 a decision that led to the suspension of sales of Sierra Income. Si was also suspended.
Sierra Income Corp. vs. FINRA: Non-Traded REIT Problems
A few days after its merger with Medley Management with Medley Capital Corp. lost a quarter-point after Covid-19 in bankruptcy Court. Net assets value fell. Many investors purchased Sierra Income and the similarly risky, complex non-listed REITs through LPL Financial.
A real estate investment trust (“REIT”) refers to a trust or company that has income-producing real estate. Individual investors can have access to income-producing commercial real estate such as warehouses, offices buildings, shopping centers, and hotels through REITs. REITs can be either listed companies that trade on an exchange or non-traded (private placements or registered startups that are not yet listed).
Securities regulators have been paying attention to non-traded REITs, as opposed to listed REITs, because of their potential abuse. Non-traded REITs were again high up on FINRA’s priority list as the securities regulator reviews firms in 2015.
A lack of liquidity is one of the greatest problems with non-traded REITs. Non-traded REITs can be a long-term investments, usually lasting 7 years or more. There is no market for these shares, except for the rare possibility that shares could be repurchased directly by the REIT. Investors will need to wait for a liquidity event, i.e.
The sale of assets or IPO. Securities regulators warned that non-traded REITs will rarely be, if ever, liquid due to this extreme illiquidity. It is suitable for both short-term and long-term investors need to be prepared to take on the risk of liquidity. See FINRA Investor Alert dated August 15, 2012.
There are many other problems with non-traded REITs. They may offer high dividends and stable value, but they can also be very difficult to manage.It is illusory.
The high dividend of a REIT is not guaranteed. It can be stopped at any moment. Many REITs finance their dividends using borrowed money, or money that they have raised from investors (i.e. With returns of capital, because cash flows are not sufficient to pay dividends via actual earnings, particularly in the early years.
The REITs’ stable values may also be misleading. Brokerage firms usually report the REIT’s initial value. sale price is also known as value or a longer period, you can receive monthly statements. This overlooks the fact that the sales and organization costs of REITs can consume up to 15% of the money raised. As such, the REIT’s initial sale price is 85%.
Stockbrokers who sell non-traded REITs often receive high commissions, which encourages investment fraud and abuse. REITs may also be known for self-dealing which can lead to conflicts between the REIT operator’s interests and those of its investors.
Sierra BDC Medley Management Inc. Non Traded BDCs Problem
Financial advisors who sold products such as Sierra Income are receiving lawsuits. One of the problems with the non-traded BDCs is that they are illiquid. Investors don’t know if the stock won’t be put on the stock exchange until they start trying to get rid of those things.
Many financial consultants sell these types of investments despite being high-risk investments and presented them as fairly moderate income-producing investments. FINRA: Securities prospects of some of the investments indicated that their prospects and Subscription Agreements were/are not adequate for investors who require access to liquidity, a guaranteed income and was only suitable for investors.