FS KKR Capital Corp. (FSK) Securities Class Action Lawsuit Update

• Case Name: Stuart v. FS KKR Capital Corp., et al.
• Case No.: 2:26-cv-02969
• Jurisdiction: United States District Court for the Eastern District of Pennsylvania
• Filed on: May 4, 2026
• Class Period: May 8, 2024 – February 25, 2026, inclusive

Introduction

On May 4, 2026, a securities class action complaint was filed in the United States District Court for the Eastern District of Pennsylvania against FS KKR Capital Corp. and two of its senior executives, Chief Executive Officer Michael C. Forman and Chief Financial Officer Steven Lilly. The lawsuit, brought on behalf of all persons and entities that purchased or otherwise acquired FSK securities between May 8, 2024 and February 25, 2026, inclusive, alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

For five consecutive quarters, FS KKR Capital's leadership painted a picture of portfolio stability and disciplined credit management. CEO Forman told investors the Company had made "significant progress restructuring certain non-accruing investments" and expressed "confidence in our ability to continue to reward shareholders with attractive distributions." Quarter after quarter, the message held: non-accrual investments were declining, the workout team’s efforts were progressing, and distributions were presented as durable. Investors, relying on these assurances, continued to purchase FSK shares at prices the complaint alleges were artificially inflated.

The facade cracked on August 6, 2025, when FS KKR Capital reported second quarter results revealing a 6.2% decline in net asset value, a $474 million drop in the total fair value of investments, and a surge in non-accrual assets. The stock fell 8.20% the following day. The truth fully emerged on February 25, 2026, when fourth quarter results disclosed that NAV had continued its slide to $20.89 per share, non-accruals had risen above the long-term BDC industry average, previously unidentified problem investments like Medallia and Cubic Corp. had surfaced, and the Company slashed its quarterly dividend from $0.70 to $0.48 per share. Shares cratered 15.24% the next trading day, closing at $11.29.

“Most FSK shareholders never file or join the class action, which means they miss out on potential recovery funds,” said Attorney Joseph Levi.

Backdrop and Business Context

FS KKR Capital Corp. is a publicly traded business development company, or BDC, that provides credit solutions to private middle-market U.S. companies. The complaint describes FS KKR as a private credit firm that makes loans to businesses and generates revenue primarily from interest income, fees, and dividends from portfolio companies.

Because FS KKR operates as a BDC, the complaint frames portfolio valuation, non-accrual levels, NAV, and distributions as key measures of the company’s financial condition. The complaint alleges that BDCs are limited in the amount of debt they can incur relative to NAV, and that portfolio defaults or other investment problems may require fair-value marks that reduce reported NAV.

Against that backdrop, the complaint focuses on FS KKR’s statements about portfolio performance, non-accrual investments, valuation controls, and shareholder distributions. According to the complaint, FS KKR stated through the first quarter of 2025 that it was improving its portfolio credit profile and addressing legacy non-accrual investments through restructuring.

The complaint also highlights FS KKR’s valuation disclosures, including statements that the board oversaw portfolio valuations at fair value while the adviser handled the day-to-day valuation process. It further cites the company’s FY 2024 Form 10-K as stating that fair-value determinations used inputs such as dealer quotes, comparable securities, portfolio-company financials and forecasts, and third-party valuation services. SEC filings stated that the company’s board was responsible for overseeing portfolio valuation at fair value and that disclosure controls were effective.

Those statements now form part of the lawsuit’s theory. The complaint alleges that Defendants overstated the effectiveness of FS KKR’s restructuring efforts, overstated portfolio valuations or valuation-process effectiveness, and overstated the durability of its quarterly distribution strategy.

Alleged Promises vs. Later Disclosures

When CEO Michael C. Forman addressed investors on May 8, 2024, he struck an optimistic tone. The Company had enjoyed "an active start to 2024," he told shareholders, generating $0.73 per share in adjusted net investment income and an annualized return on equity of 10%. During the first quarter, he emphasized, FS KKR Capital had "made significant progress restructuring certain non-accruing investments," and he expressed confidence that "the long-term earnings power of FSK continues to be healthy" and in the Company's "ability to continue to reward shareholders with attractive distributions." The numbers appeared to support the narrative: non-accrual investments had dropped from 5.5% to 4.2% of the portfolio at fair value.

As the year progressed, the reassurances only deepened. By the second quarter, Forman characterized the period as "another solid quarter," telling investors that the "workout team's efforts further reduced our non-accrual investments" and that results would "enable us to continue rewarding shareholders with attractive distributions, which we expect will equate to a minimum of $2.90 per share during 2024." Non-accruals had fallen further to 1.8% at fair value. In the third quarter, Forman highlighted that FSK had "outperformed its public guidance" and "further reduced our non-accrual investments," adding that he was "optimistic that the economy's strong underpinnings will help facilitate what could be a measurable increase in M&A activity." By the fourth quarter of 2024, the CEO praised "continued strong performance, highlighted by disciplined capital deployment, portfolio stability, and a well-laddered, diversified capital structure." Even into the first quarter of 2025, Forman characterized the period as a "strong start to the year" and assured investors that the Company's "strategy of building spillover income during prior periods of elevated interest rates supports the continued stability of our $0.64 base and $0.06 supplemental quarterly distributions amid the current market volatility." Each quarter, the Company's 10-Q and 10-K filings affirmed that the board of directors was "responsible for overseeing the valuation of the Company's portfolio" and that "disclosure controls and procedures were effective."

The complaint alleges that the first corrective disclosure occurred on August 6, 2025, when second quarter results began to reveal what prior quarters’ optimism had allegedly obscured. Net asset value had plunged to $21.93 per share, a 6.2% decline from the prior quarter, while the total fair value of investments fell $474 million.

Earnings swung to a loss of $0.75 per share, and non-accrual investments rose sharply, climbing to 3.0% and 5.3% of the portfolio at fair value and amortized cost, respectively. Chief Investment Officer Daniel Pietrzak identified four problem companies (Production Resource Group, 48forty, Kellermeyer Bergensons Services, and Worldwise), three of which he acknowledged were "larger investments in our portfolio." Yet management continued to characterize the results as “impacted by company specific issues” and said the workout team “remains actively engaged.”

The full scope of the deception, as alleged in the complaint, emerged on February 25, 2026. Fourth quarter results showed NAV had continued to erode to $20.89 per share, the total fair value of investments had fallen another $406 million, and non-accruals had risen yet again to 3.4% and 5.5% at fair value and amortized cost. Pietrzak stated that approximately 50% of fourth-quarter net realized and unrealized losses were attributable to four investments: Production Resource Group, Medallia, Peraton, and Cubic Corp. As alleged in the complaint, the Company had for five consecutive quarters overstated the effectiveness of its portfolio restructuring, overstated the valuation of its investments, and overstated the durability of its distribution strategy, all while allegedly failing to disclose the extent of portfolio deterioration described in the complaint.

Timeline of Alleged Misconduct and Disclosures

Class Period: May 8, 2024 – February 25, 2026, inclusive.

May 8, 2024: Class Period opens. FS KKR Capital issues Q1 2024 press release and files 10-Q. CEO Forman touts "significant progress restructuring certain non-accruing investments" and confidence in "attractive distributions." Non-accruals reported at 4.2% (fair value).

August 6, 2024: Company issues Q2 2024 press release and files 10-Q. Forman states workout team "further reduced our non-accrual investments." Non-accruals drop to 1.8% (fair value). Projects minimum $2.90 per share distributions for 2024.

November 6, 2024: Company issues Q3 2024 press release and files 10-Q. Forman highlights outperformance of public guidance and further reduction of non-accruals to 1.7% (fair value).

February 26, 2025: Company issues Q4 and full year 2024 press release and files 10-K. Forman touts "portfolio stability" and $4.8 billion in available liquidity. Non-accruals at 2.2% (fair value). 10-K certifies internal controls and disclosure procedures as effective.

May 7, 2025: Company issues Q1 2025 press release and files 10-Q. Forman characterizes results as a "strong start to the year" and highlights distribution stability. Non-accruals at 2.1% (fair value).

August 6, 2025: FIRST CORRECTIVE DISCLOSURE. After market close, Company reports Q2 2025 results. NAV declines 6.2% to $21.93 per share. Total fair value of investments falls $474 million. EPS swings to loss of $0.75. Non-accruals surge to 3.0% (fair value) and 5.3% (amortized cost). Co-President and CIO Pietrzak identifies four problem companies: Production Resource Group, 48forty, Kellermeyer Bergensons Services (KBS), and Worldwise.

August 7, 2025: FSK shares fall $1.66 or 8.20%, closing at $18.58 on unusually heavy trading volume.

November 5, 2025: Company issues Q3 2025 press release and files 10-Q. Forman announces 2026 distribution strategy targeting approximately 10% annualized yield on NAV. Non-accruals at 2.9% (fair value) and 5.0% (amortized cost).

February 19, 2025: FSK shares close at Class Period high of $24.06 per share.

February 25, 2026: SECOND CORRECTIVE DISCLOSURE (End of Class Period). After market close, Company reports Q4 and full year 2025 results. NAV declines to $20.89 per share (down 5% from prior quarter). Total fair value of investments falls another $406 million to $13,009 million. EPS loss of $0.41. Non-accruals rise to 3.4% (fair value) and 5.5% (amortized cost). CIO Pietrzak acknowledges challenges in additional investments including Medallia and Cubic Corp. States that approximately 50% of fourth-quarter net realized and unrealized losses were attributable to Production Resource Group, Medallia, Peraton, and Cubic Corp. Admits non-accrual rate exceeds long-term BDC industry average of approximately 3.8%. Company cuts quarterly dividend from $0.70 to $0.48 per share.

February 26, 2026: FSK shares fall $2.03 or 15.24%, closing at $11.29 on unusually heavy trading volume.

May 4, 2026: Securities class action complaint filed in the Eastern District of Pennsylvania.

Investor Harm and Market Reaction

The complaint alleges that the corrective disclosures caused significant losses for FS KKR Capital shareholders across two events. The first blow landed on August 7, 2025, the trading day after the Company disclosed its Q2 2025 results. Shares fell $1.66, or 8.20%, to close at $18.58 on unusually heavy trading volume, after the Company disclosed the 6.2% NAV decline, the $474 million drop in investment fair value, and the rise in non-accrual assets from 2.1% to 3.0% at fair value.

The second and far more devastating disclosure came on February 26, 2026, the trading day after the complaint alleges FS KKR Capital revealed further portfolio deterioration and cut its dividend. Shares plummeted $2.03, or 15.24%, to close at $11.29, again on unusually heavy volume. The complaint ties the stock decline to the continued NAV erosion, rising non-accruals, additional challenged investments, and dividend cut.

Taken together, the declines were staggering. From the Class Period high of $24.06 per share on February 19, 2025, FSK shares fell to $11.29 by February 26, 2026, a decline of approximately 53%. The combined corrective disclosures caused what the complaint describes as a "precipitous decline in the market value of the Company's securities," resulting in "significant losses and damages" for investors who had relied on management's repeated assurances of portfolio stability and distribution durability.

Litigation and Procedural Posture

The complaint asserts claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against all defendants, and under Section 20(a) of the Exchange Act against the individual defendants as controlling persons. The defendants include FS KKR Capital Corp., CEO and Chairman Michael C. Forman, and CFO Steven Lilly.

Scienter allegations center on the individual defendants’ senior positions, their alleged involvement in Company reports and public statements, and their alleged access to internal information about the portfolio’s condition.

The complaint alleges that Forman and Lilly, by virtue of their roles and access to internal reports, knew or recklessly disregarded that the Company's positive statements about portfolio restructuring progress, investment valuations, and distribution sustainability were materially false or misleading. No insider sales or confidential witness allegations are specifically detailed in the complaint.

Procedurally, the case was filed on May 4, 2026, and is styled as a class action under Federal Rule of Civil Procedure 23(a) and (b)(3). The class encompasses all persons and entities that purchased or otherwise acquired FSK securities during the Class Period of May 8, 2024 through February 25, 2026, inclusive. Lead plaintiff submissions are due July 6, 2026. Class certification has not yet been ruled on. The complaint invokes the fraud-on-the-market presumption of reliance, citing FSK's active trading on the NYSE, regular SEC filings, dissemination of press releases, and coverage by securities analysts.

SEC Filings & Risk Factors

Throughout the Class Period, FS KKR Capital filed a series of quarterly reports (10-Qs) and one annual report (10-K) with the SEC, each of which affirmed the Company's financial results, certified the effectiveness of its disclosure controls and procedures, and described its valuation processes in terms that the complaint alleges were materially misleading.

The Q1 2024 10-Q, filed May 8, 2024, certified that the Company's "disclosure controls and procedures were effective" and that the board of directors was "responsible for overseeing the valuation of the Company's portfolio investments at fair value." The Q2 2024 10-Q (August 6, 2024), Q3 2024 10-Q (November 6, 2024), and Q1 2025 10-Q (May 7, 2025) each repeated these certifications verbatim. The FY24 10-K, filed February 26, 2025, went further, stating that management had "concluded that, as of December 31, 2024, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting." It also described a detailed valuation process relying on "indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party pricing and valuation services."

The FY24 10-K also contained risk factor language that, according to the complaint, framed already-materialized risks as hypothetical possibilities. The Company warned that "impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our financial statements" and "could result in a significant reduction to our net asset value." It further cautioned that because "such valuations, and particularly valuations of private securities and private companies, are inherently uncertain," the Company's "fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize." The complaint alleges these risk disclosures employed conditional language ("could," "may") for problems that Defendants knew had already begun to materialize within the portfolio.

Even after the first corrective disclosure on August 6, 2025, the Q2 2025 10-Q filed that same day continued to certify that disclosure controls and procedures were effective and that the board maintained oversight of the valuation process. The Q3 2025 10-Q (November 5, 2025) repeated these assurances despite non-accruals remaining elevated at 2.9% and 5.0% of the portfolio.

The pattern, as alleged, reveals a persistent gap between what the filings represented and what was actually occurring within the portfolio. The complaint contends that the Company (1) overstated the effectiveness of its portfolio restructuring efforts, (2) overstated the valuation of its portfolio investments and the effectiveness of its valuation process, and (3) overstated the durability of its distribution strategy. The risk factor disclosures treated as speculative the very portfolio deterioration that was allegedly already underway, while the internal control certifications lent an air of institutional rigor to results that the complaint alleges were materially misleading. The materiality of these omissions is underscored by the market's reaction: from the Class Period high of $24.06 per share on February 19, 2025, FSK shares fell to $11.29 by February 26, 2026, a decline of approximately 53%.

How to Join the FS KKR Capital Corp. (FSK) Class Action

• Confirm you purchased FSK shares during the relevant class period between May 8, 2024 and February 25, 2026
• Review the allegations and eligibility requirements in the filed complaint
• Gather trade confirmations and account statements reflecting FSK purchases or sales
• Contact class counsel or a securities litigation attorney to evaluate potential participation
• Click here to check eligibility

Disclaimer: This shareholder alert is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for personalized guidance. No specific outcomes are guaranteed.