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The national securities and class action law firm, Levin Law, P.A. (“Levin Law”) is investigating securities brokerage firms that recommended and sold interests in Sierra Income Corporation (“Sierra”) to their customers. In their Second Quarter, 2020 Distribution Letter to Stockholders, Sierra announced that they would be suspending monthly distributions on the shares of the company’s common stock.
The company states that the decision comes amid the “volatile economic environment” created by the outbreak of COVID-19. Sierra is a non-traded business development company (BDC) that focuses primarily on senior debt.Investments in a Business Development Companys (“BDC”), such as Sierra are risky and are unsuitable for most investors. If your stockbroker, financial advisor, or other investment professional recommended and sold you shares in Sierra, causing you to suffer significant losses, please contact (305) 402-9050 or firstname.lastname@example.org.
BDCs are notoriously risky investments that can result in substantial losses to investors. When a brokerage firm recommends investing in a BDC such as Sierra, they must disclose all material risks, including that BDCs are typically made up of unproven or financially distressed small to mid-sized companies. Investors are given no guarantee in how the underlying assets will perform, since they are rarely market-tested.
Additionally, while many BDCs promise high returns to investors, they often overvalue the companies in their portfolio. BDCs are generally more expensive than traditional investments because they have high commission and management fees.
Sierra’s announcement that they would be suspending monthly distributions to investors is a sign of financial trouble for the company. In their letter to stockholders, they acknowledge that COVID-19 has directly impacted their portfolio and has led them to file for federal assistance under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
The decision to temporarily terminate monthly distributions comes days before the announcement of a termination of mergers with Medley Capital Corporation (“MCC”) and Medley Management Inc. (“MDLY”). Through a press release, Sierra stated that the merger termination came after considering many factors including “changes in the relative valuations” of the companies, “unpredictable economic conditions” caused by the pandemic, and “uncertainty regarding the parties’ ability to satisfy the conditions to closing in a timely manner.”