Capitala Finance Corp. Facing Securities Suit in North Carolina

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Capitala Finance Corp. and two top executives are facing a securities lawsuit originally filed in December 2017 that has recently been removed to federal court in North Carolina. The suit takes issue with the defendants’ supposed failure to disclose that a business decision had negatively impacted the company’s investments.

According to the complaint, the defendants announced in January 2016 that Capitala Investment Advisors, a firm that manages Capitala Finance’s investments in exchange for a base fee and incentive fee, had chosen to voluntarily waive the quarterly incentive fee. Following this announcement, the defendants allegedly failed to disclose to investors that this decision had resulted in a loss of “professional talent in both underwriting and portfolio management.” Consequently, the case continues, several of the company’s investments fell into non-accrual status during the next quarter.

Finally, in August 2017, the defendants supposedly revealed to the public that the departure of key employees had impacted its investments, causing stock prices to fall 30 percent. The plaintiff in the case claims the defendants misled investors by hiding this information and representing that the company was poised for success.