Shareholder sues FS KKR Capital board, alleges NAV and dividend cover-up

A shareholder lawsuit accuses FS KKR Capital's board of papering over portfolio cracks and an unsustainable dividend before the stock dropped 15%. 

Theodore Goodman, a shareholder of FS KKR Capital Corp. (NYSE: FSK), is taking the business development company's directors and officers to federal court, alleging they spent nearly two years telling investors a story that didn't match what was happening inside the portfolio. 

The derivative suit, filed May 12 in the U.S. District Court for the Eastern District of Pennsylvania, names CEO and Chairman Michael C. Forman, CFO Steven Lilly, President and Chief Investment Officer Daniel Pietrzak, and nine other current and former directors. FS KKR Capital, managed by FS/KKR Advisor, LLC, invests mainly in senior secured debt of private middle-market American companies and reported approximately $13.7 billion in total assets as of December 31, 2025. 

The heart of the case, Goodman v. Forman et al., No. 2:26-cv-03240, is straightforward: between May 8, 2024 and February 25, 2026, the suit alleges, leadership repeatedly assured investors that the portfolio was being cleaned up, valuations were sound, and the dividend was strong. According to the filing, Forman touted "significant progress restructuring certain non-accruing investments" and pointed to the company's "strategy of building spillover income during prior periods of elevated interest rates" as supporting the "continued stability of our $0.64 base and $0.06 supplemental quarterly distributions amid the current market volatility." 

Then, the complaint says, the cracks showed. 

On August 6, 2025, FS KKR Capital reported net asset value per share had dropped 6.2% to $21.93, total fair value of investments fell $474 million, and non-accruals climbed to 3.0% at fair value and 5.3% at amortized cost. According to the filing, four troubled portfolio companies, including Production Resource Group and 48forty, drove the slide. The stock fell about 8.2% the next day, from $20.24 to $18.58. 

The fuller picture, the suit alleges, came on February 25, 2026. NAV slipped to $20.89. Another $406 million in investment value came off the books. Non-accruals rose to 3.4% at fair value and 5.5% at amortized cost. According to the complaint, Pietrzak told analysts on the earnings call that the 2026 dividend, which the company had originally believed would equate to approximately 10% of NAV, "may now be more in the range of 9% of net asset value." The quarterly payout was cut from $0.70 to $0.48 per share. Shares fell 15.2% the following day, closing at $11.29. 

The filing also flags a November 25, 2024 trade by director Osagie Imasogie, who, the suit alleges, sold 40,885 shares for about $900,034 in total proceeds while in possession of material non-public information. 

The claims include breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of Section 14(a) of the Securities Exchange Act of 1934. Forman and Lilly also face contribution claims tied to a parallel securities class action pending in the same court. 

For advisors who steer clients toward BDCs for yield, the case is a reminder of how much rides on board oversight of valuation. Under Rule 2a-5 of the Investment Company Act, directors can hand day-to-day fair-value work to an adviser, but the board remains responsible. When non-accruals jump and NAV slides, those judgments get scrutinized in hindsight. 

The allegations have not been tested in court, the defendants have not yet filed a response, and no ruling has been made.