Prospect Floating Rate and Alternative Income Fund Lawsuit | White Law Group
The Prospect Floating Rate and Alternative Income Fund lost more ground in its latest fiscal year, partly because of a loan to bankrupt auto parts maker First Brands Group. The White Law Group is investigating potential lawsuit and arbitration claims on behalf of investors whose brokers recommended this non-traded business development company (BDC). Here is what the fund’s own filings show and what your options may be.
If a broker recommended the Prospect Floating Rate and Alternative Income Fund to you and you suffered losses, our FINRA arbitration attorneys offer a free consultation.
What Is the Prospect Floating Rate and Alternative Income Fund?
The Prospect Floating Rate and Alternative Income Fund is a non-traded BDC managed by Prospect Capital Management L.P. It lends mainly to privately owned U.S. middle market companies. The fund has operated under several earlier names, including Prospect Sustainable Income Fund, Prospect Flexible Income Fund, TP Flexible Income Fund, and Triton Pacific Investment Corporation.
The fund has struggled for years. In February 2023, it disclosed substantial doubt about its ability to continue as a going concern. It said it had not raised enough capital to build a portfolio that could cover its operating expenses.
2026 Update: NAV Falls to $3.89 per Share
According to the fund’s annual report for the fiscal year ended June 30, 2026, net asset value (NAV) fell from $4.50 to $3.89 per share. The fund reported about $5.9 million in net realized and unrealized investment losses for the year. Shares were originally sold at $10.00, so the current NAV is down more than 60% from the offering price.
The fund is also small and uses borrowed money. As of June 30, 2026, it held about $73.1 million in investments across 25 companies, backed by only $37.1 million in net assets.
First Brands Bankruptcy Hits the Fund’s Portfolio
First Brands Group, maker of brands like Fram filters and Autolite spark plugs, filed for Chapter 11 bankruptcy on September 29, 2025. In January 2026, federal prosecutors in Manhattan indicted its founder and former CEO, Patrick James, and his brother Edward James, alleging a multibillion-dollar fraud against the company’s lenders. Patrick James denies the charges.
The Prospect Floating Rate and Alternative Income Fund held a $5.9 million first lien term loan to First Brands. The fund valued that loan at $5.6 million on June 30, 2025, which was about 14% of the fund’s net assets. By September 30, 2025, the fund had marked it down to $2.2 million. The fund has since also lent to First Brands in bankruptcy, and the company’s lenders were operating under a forbearance agreement extended through October 5, 2026.
Why the High Distribution Rate Can Be Misleading
In June 2026, the fund announced a total annualized distribution rate of 14.96%. That rate is calculated on NAV, and NAV has fallen sharply. A shrinking share value makes the same payout look like a bigger percentage. Investors should weigh distributions against the drop in what their shares are worth.
Risks of Non-Traded BDCs
- High upfront costs: Sales commissions and fees can take a large bite out of your investment on day one.
- Illiquidity: Shares do not trade on an exchange, so selling can be difficult or impossible.
- Concentration: A small fund can take heavy losses when a single borrower fails.
- Leverage: Borrowed money magnifies losses as well as gains.
Prospect Floating Rate and Alternative Income Fund Lawsuit and Recovery Options
Brokerage firms must make sure an investment fits each customer’s age, finances, and risk tolerance before recommending it. If a broker sold you the Prospect Floating Rate and Alternative Income Fund without explaining these risks, you may be able to recover your losses through FINRA arbitration. Claims are filed against the brokerage firm that made the recommendation, not the fund.
Contact The White Law Group
The White Law Group is a national securities fraud law firm with offices in Chicago and Seattle. We represent investors in FINRA arbitration claims nationwide.
If you invested in the Prospect Floating Rate and Alternative Income Fund, call us at (888) 637-5510 for a free consultation, or contact us online.
Frequently Asked Questions
1. How do I file a claim to recover money I invested in the Prospect Floating Rate and Alternative Income Fund?
Most investors pursue recovery through FINRA arbitration against the brokerage firm that recommended the fund. Most brokerage account agreements typically include a pre-dispute arbitration clause, which many investors don’t know about, so these claims generally go to FINRA arbitration instead of court. Arbitration can still result in a monetary recovery, and it is often faster than a court lawsuit.
2. What is an unsuitable recommendation, and why does it matter for this fund?
An unsuitable recommendation is one that doesn’t fit the investor’s age, finances, goals, or risk tolerance. Non-traded BDCs like this fund are illiquid, use leverage, and can lose value quickly, so they are a poor fit for many retirees and conservative investors. If your broker put a large share of your savings into this fund, that may support a claim.
3. Can the brokerage firm be held responsible for my losses?
Yes, a brokerage firm can be liable if it failed to properly vet the fund or supervise the broker who sold it. FINRA rules require firms to do due diligence on the products they sell and to supervise their representatives’ recommendations.
