Priority Income Fund: Investors May Have Recovery Options

Investors who suffered losses on investments in Prospect Capital’s Priority Income Fund may have recovery options. Carlson Law is investigating potential claims regarding the fund, which may have been an unsuitable investment for certain retail customers.

As the fund’s website explains, Priority Income Fund was launched in 2014. Its primary objective was to generate income, while its secondary objective was “long-term capital appreciation by investing at least 80% of total assets in securitized pools of senior secured loans and/or investing in senior secured loans in the primary or secondary markets.”

A closed-end fund providing investors access to collateralized loan obligations, or CLOs, the fund boasted of five features: “investments in first lien, “senior secured loans to large US companies”; consistent income, in the form of an annualized distribution paid monthly; diversification in the form of exposure to “senior secured loans to ~1,500 companies through approximately 179 CLO positions”; a lack of duration risk; and access to “best-in-class CLO manager teams.”

At the same time, investments in Priority Income Fund entailed significant risks, including the potential for total loss of principal. Among others, the website’s “Risks” section notes that there is no public market for investments in Priority Income Fund; the fund has a limited operating history; investments have “limited liquidity and lack of transferability”; the fund may have conflicts of interest; the fund exposes investors to leveraged credit risk and interest rate risk;  there would be a “Lack of diversification in assets of the Fund until significant funds have been raised”; and similarly, there the fund “will not be a diversified investment fund for purposes of the 1940 Act.”

Financial advisors who engaged in sales practice violations in the recommendation of investments in Priority Income Fund may be liable for damages to investors who suffered losses. Potential sales practice violations include the recommendation of unsuitable investments, breach of fiduciary duty, negligence, misrepresentation and omission of material facts, and the failure to conduct adequate due diligence.

For reference, FINRA Rule 2111 requires that brokers conduct reasonable diligence into an investor’s profile in order to understand its potential risks and rewards and determine whether an investor is suitable for them. A failure to understand an investment’s potential risks and rewards is considered a violation of Rule 2111. Suitability requirements, to be clear, are not fiduciary requirements, which require investment advisers to place their customer’s interests over their own interests.

Carlson Law represents investors throughout the United States in claims against financial advisors and investment firms. If you or a loved one have suffered losses on investments in Priority Income Fund, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.