Capitala Finance Corporation

Capitala Accused of Misleading Investors About the Quality of its Investment Portfolio

Capitala Investment Advisors, LLC manages Capitala Finance (CPTA) in exchange for an annual base management fee and an incentive fee. On January 4, 2016, Capitala Finance announced that Capitala Investment Advisors agreed to voluntarily waive its quarterly incentive fee. Throughout the class period, Capitala Finance emphasized in its Securities and Exchange Commission filings that the company’s success “depends on the ability of Capitala Investment Advisors to attract and retain qualified personnel in a competitive environment.” On August 7, 2017, Capitala Finance revealed that six of its investments were on non-accrual status—twice as many as it had the previous quarter. The next day, Capitala Finance revealed that Capitala Investment Advisors had been losing professional talent in underwriting and portfolio management due to the waiving of its incentive fee. Capitala Finance further acknowledged that the rising number of nonaccrual investments was connected to the loss in talent, causing the company’s stock to fall nearly 30% over the next three trading days to close at $8.99 per share on August 10, 2017. Capitala Finance’s stock has since fallen even further, closing at $7.28 per share on December 29, 2017.

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