NEW YORK, Nov. 13, 2015 (GLOBE NEWSWIRE) -- Pomerantz LLP announces that a class action lawsuit has been filed against Fifth Street Finance Corp., Fifth Street Asset Management, Inc. (“FSC” or the “Company”) (NASDAQ: FSC ), (“FSAM” or the “Company”) (NASDAQ: FSAM ) and certain of its officers. The class action, filed in United States District Court, Southern District of New York, and docketed under 15-cv-08908, is on behalf of a class consisting of all persons or entities who purchased FSC and FSAM securities between July 7, 2014 and February 6, 2015 inclusive (the “Class Period”). This class action seeks to recover damages against Defendants for alleged violations of the federal securities laws under the Securities Exchange Act of 1934 (the “Exchange Act”).
If you are a shareholder who purchased FSC and FSAM securities during the Class Period, you have until November 30, 2015 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com . To discuss this action, contact Robert S. Willoughby at rswilloughby@pomlaw.com or 888.476.6529 (or 888.4-POMLAW), toll free, ext. 9980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and number of shares purchased.
Fifth Street is a credit-focused asset management enterprise founded by defendant Leonard M. Tannenbaum ("Tannenbaum"). FSC is a publicly traded asset portfolio company within the Fifth Street family of companies. FSC lends to and invests in small and midsized companies in connection with investments by private equity sponsors with the stated goal of generating investment income, which are then paid out as dividends to FSC shareholders.
FSAM is the asset manager and investment advisor for FSC, from which it receives tens of millions of dollars annually for the provision of investment advisory services. As of June 30, 2014, FSC provided about 90% of FSAM's assets under management, and thus the asset manager's primary revenue source. The amount of fees paid by FSC to FSAM is largely determined by FSC's gross portfolio assets. Thus, FSAM may increase the amount of fees it receives from FSC by borrowing money to make additional investments that increase the size of FSC's asset portfolio. FSC primarily invests in illiquid assets and uses a form of fair value accounting that prevents investors and the market from being able to independently ascertain the credit quality and actual performance of the Company's investments, while allowing the Company to record investment income (thereby increasing fees paid to FSAM) even if that income is never collected.
The Complaint alleges that throughout the Class Period, defendants engaged in a fraudulent scheme and course of business designed to artificially inflate FSC's assets and investment income in order to increase FSAM's revenue. Specifically, defendants pushed FSC into increasingly risky, speculative investments at unsustainable leverage levels, delayed writing down impaired investments in order to create the appearance of increasing revenues for FSAM, and systematically overstated the income generated by FSC's investments and the fair value of its portfolio, while simultaneously providing investors and the market with false and misleading portrayals of FSC's business trends and expected performance.
On February 9, 2015, FSC reported its fiscal results for the quarter ended December 31, 2014 the same quarter in which defendants conducted the FSAM IPO. FSC revealed that, around the time its executives were taking FSAM public, it had moved $106 million worth of investments to non-accrual status with an additional $17 million likely to be designated non-accrual in the subsequent quarter, which together constituted about 5% of the Company's entire debt investment portfolio on a cost basis. The Company also revealed that, even though the total assets of FSC's investment portfolio had continued to increase to nearly $3 billion by quarter end, the net investment income received by the Company had actually decreased by 6% compared to the prior quarter. And, despite having announced a 10% dividend increase only four months before taking FSAM public, FSC declared that it would issue zero dividends for February 2015, while decreasing future dividend payments by more than 30% as part of a more "conservative" dividend policy.
On this news, the price of FSC common stock plummeted $1.27 per share on February 9, 2015 to close at $7.22 per share, a decline of nearly 15% on volume of 10.9 million shares.
On February 23, 2015, Fitch Ratings Inc. downgraded FSC to BB+ from BBB- on a negative outlook, citing "FSC's higher leverage levels, combined with increased portfolio risk, an inconsistent dividend policy, material portfolio growth in a very competitive underwriting environment, asset quality deterioration, and weaker operating performance." By August 7, 2015, the price of FSC common stock had fallen to $6.11 per share at closing, 40% below the Class Period high of $10.10 per share.
On October 29, 2014, defendants sold 6 million FSAM shares for $17 per share, with Leonard M. Tannenbaum and his associates receiving tens of millions of dollars from the sale of their shares in the Initial Public Offering ("IPO").
The Pomerantz Firm, ith offices in New York, Chicago, Florida, and Los Angeles, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 70 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com
CONTACT: Robert S. Willoughby Pomerantz LLP rswilloughby@pomlaw.com
