First Capital’s BDC and Recently Dismissed Accounting Firm at Odds Over Investment Disclosure

First Capital Investment Corporation, a publicly registered non-traded business development company, recently dismissed RSM US LLP as its independent registered public accounting firm. RSM submitted a letter to the Securities and Exchange Commission stating that it believed that the dismissal was the result of a disagreement on accounting principles and financial statement disclosure.

During its review of the BDC’s quarterly financial information for the first quarter of 2017, RSM raised concerns about the accounting and disclosure for two investments made by the company in First Capital Retail LLC in the form of secured promissory notes of $1.5 million each on February 24, 2017 and March 31, 2017. Specifically, the BDC’s investments in First Capital Retail may be deemed as a transaction with an affiliate which could materially impact the reliability of certain financial statements of the company.

Prior to February 23rd, First Capital Retail was wholly-owned by First Capital Real Estate Investments, an entity controlled by the BDC’s secretary and chairman, Suneet Singal.

RSM said that on February 23rd, First Capital Real Estate Investments sold 100 percent of its membership interest in First Capital Retail to a member of its management team in exchange for a promissory note secured by substantially all of the buyer’s acquired membership interests in First Capital Retail.

At the same time, First Capital Real Estate Investments also held a 24.9 percent ownership interest in First Capital Investment Corporation’s advisor, FCIC Advisors LLC, via a of 24.9 percent membership interest in First Capital Investment Management, the parent company of the investment advisor.

On March 28th, First Capital Real Estate Investments executed an agreement with First Capital Investment Management to purchase the remaining membership interests of First Capital Investment Management, which was completed on April 3rd, at which point First Capital Real Estate Investments controlled 100 percent of First Capital Investment Management and FCIC Advisors.

At the time of its dismissal, RSM said that the concerns had not been resolved to its satisfaction. To replace RSM, the board’s audit committee appointed Malone Bailey as the new independent registered public accounting firm.

First Capital Investment Corporation is a $500 million offering that seeks to invests in private U.S. small- and middle-market companies. The company currently has one unsecured $1.5 million loan and has raised approximately $6.1 million in investor equity.

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