Business Development Company (BDC) Attorneys

Written and reviewed by

David Harrison, Partner — Bakhtiari & Harrison

Admitted: CA | NY · Super Lawyers 2015–2026 · Former NYC Assistant District Attorney · Former Morgan Stanley In-House Counsel · Series 7 Licensed · Last reviewed: May 2026

Bakhtiari & Harrison represents investors in business development company (BDC) fraud and unsuitable recommendation claims in FINRA arbitration nationwide. Non-traded BDCs — like non-traded REITs — combine high broker commissions, near-total illiquidity, opaque valuations, and distributions frequently funded by return of capital rather than investment income. They are marketed as high-yield income alternatives while their actual risk profile resembles leveraged loans and high-yield bonds — not the conservative income investments they are represented to be. David Harrison is a former Morgan Stanley Dean Witter in-house counsel who began his career as a Series 7-licensed registered representative at Shearson Lehman Brothers. Investor cases are handled on a contingency fee basis — no recovery, no fee.

What is a business development company?

A business development company (BDC) is a closed-end investment fund that invests primarily in the debt and equity of small and mid-sized private companies — typically those that cannot access conventional bank financing or public capital markets. BDCs were created by Congress in 1980 to channel capital to smaller businesses, and are regulated under the Investment Company Act of 1940.

BDCs come in two forms: publicly traded BDCs, whose shares trade on securities exchanges with daily pricing and liquidity; and non-traded BDCs, which raise capital through broker-dealer networks, pay commissions of 7-10%, and have no liquid secondary market. Non-traded BDCs are the primary source of investor claims — their combination of high commissions, illiquidity, and misleading income representations mirrors the non-traded REIT structure.

Why non-traded BDCs are frequently unsuitable

High commission structure: non-traded BDCs pay selling commissions of 7-10% of invested capital — meaning an investor who places $100,000 in a non-traded BDC immediately has an effective investment of $90,000-$93,000.
Illiquidity: non-traded BDC shares have no liquid secondary market. Redemption programs are limited and frequently suspended. Investors may be unable to access their capital for years.
Credit risk misrepresentation: BDC portfolios consist primarily of loans to below-investment-grade companies — the same borrowers that issue high-yield bonds. The credit risk of a BDC portfolio is substantially higher than its “income fund” marketing suggests.
Leverage risk: BDCs are permitted to leverage their portfolios up to 1:1 debt-to-equity under the Investment Company Act. Leveraged loan portfolios are highly sensitive to credit market conditions and can experience sharp NAV declines in credit downturns.
Return-of-capital distributions: like non-traded REITs, non-traded BDCs sometimes pay distributions that are funded by returning investor capital rather than investment income — creating the appearance of yield while depleting the investment.

BDC misconduct claims

Unsuitable recommendations: non-traded BDCs are generally unsuitable for conservative investors, retirees who need liquidity, and investors whose financial situation cannot accommodate illiquid, credit-sensitive investments.
Misrepresentation of income: representing BDC distributions as investment income when they are funded by return of capital or leverage is actionable misrepresentation.
Failure to disclose credit risk: recommending BDCs as conservative income alternatives without disclosing that the underlying portfolio consists of loans to below-investment-grade borrowers is a material omission.

Frequently asked questions — BDCs

How is a BDC different from a REIT?

A REIT invests primarily in real estate assets. A BDC invests primarily in debt and equity of private companies — making its portfolio primarily a credit portfolio rather than a real estate portfolio. Both non-traded REITs and non-traded BDCs share similar commission structures, illiquidity profiles, and misconduct patterns. The underlying portfolio risk in a BDC is credit risk rather than real estate market risk. business development company

My non-traded BDC suspended its distributions — what does that mean?

A distribution suspension typically signals that the BDC’s portfolio is not generating sufficient income to support the stated distribution rate — often because loan defaults in the portfolio are reducing income. Contact Bakhtiari & Harrison immediately. If the BDC was unsuitably recommended or its credit risk was misrepresented, you may have a viable FINRA arbitration claim.

Can I sell my non-traded BDC shares?

Non-traded BDC shares are illiquid. Limited redemption programs exist but are frequently suspended or oversubscribed. Secondary market trading platforms may offer an exit at a significant discount to stated NAV. Bakhtiari & Harrison evaluates BDC claims regardless of whether you have attempted to sell your shares.

For a full overview of the firm’s investment product failure practice, visit the Product Failure page.

Contact a BDC attorney — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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