Fifth Street Finance Corp.
ROBBINS GELLER RUDMAN & DOWD LLP UPDATES SHAREHOLDERS OF FIFTH STREET FINANCE CORP., FIFTH STREET ASSET MANAGEMENT INC., AND FIFTH STREET SENIOR FLOATING RATE CORP. REGARDING SECURITIES CLASS ACTION LAWSUIT
San Diego – October 8, 2015 – Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) (http://www.rgrdlaw.com/cases/fifthstreet/) previously announced the filing of a class action lawsuit in the United States District Court for the Southern District of New York on behalf of purchasers of Fifth Street Finance Corp. (“FSC”) (NASDAQ:FSC) common stock during the period between July 7, 2014 and February 6, 2015 (the “Class Period”). The case, Randall v. Fifth Street Finance Corp., et al., No. 1:15-cv-07759, was filed on October 1, 2015 and has been assigned to the Honorable Judge Lewis A. Kaplan. Investors in FSC, Fifth Street Asset Management Inc. (“FSAM”) (NASDAQ:FSAM) and Fifth Street Senior Floating Rate Corp. (“FSFR”) (NASDAQ:FSFR) suffered losses due to the previously undisclosed information becoming public.
If you purchased FSC common stock during the Class Period and suffered losses in connection therewith, you may qualify to serve as a lead plaintiff in this action. The court-appointed lead plaintiff is generally the investor with the largest financial interest in the relief sought by the class that is adequate and typical of other class members who directs and oversees the litigation on behalf of the putative class. Any member of the putative class may move the court to serve as lead plaintiff through counsel of their choice, or may choose to do nothing and remain an absent class member. Your ability to share in any recovery is not affected by the decision of whether or not to serve as a lead plaintiff. The deadline to file lead plaintiff motions in this case is November 30, 2015. To inquire about serving as lead plaintiff or discuss this action or notice, please contact plaintiff’s counsel, Darren Robbins of Robbins Geller at 800/449-4900 or 619/231-1058, or via e-mail at firstname.lastname@example.org. You can view a copy of the complaint at http://www.rgrdlaw.com/cases/fifthstreet/.
The complaint charges FSC, FSAM and certain of their officers and directors with violations of the Securities Exchange Act of 1934. FSC is a specialty finance company managed by FSAM that lends to and invests in small and mid-sized companies, primarily in connection with investments by private equity sponsors. FSC’s founder and one-time Chairman and CEO Leonard M. Tannenbaum and his associates were the private owners of FSAM before taking it public in an initial public offering (“IPO”) in October 2014.
The complaint alleges that defendants engaged in a fraudulent scheme and course of business designed to artificially inflate FSC’s assets and investment income to increase FSAM’s revenue during the Class Period. Specifically, the complaint alleges that, among other things, defendants pushed FSC into increasingly risky, speculative investments at unsustainable leverage levels, delayed writing down impaired investments 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. Because FSAM’s revenues are tied directly to FSC’s gross assets and recorded income, the larger FSC’s asset portfolio became and the more income it recorded, the greater FSAM’s revenue stream would appear to investors, and the higher the price at which defendant Tannenbaum and his associates could sell their FSAM shares to the public.
On October 29, 2014, defendants sold 6 million FSAM shares for $17 per share, with Tannenbaum and his associates receiving tens of millions of dollars from the sale of their shares in the IPO. The gross cash proceeds for the IPO alone were approximately $100 million, a single payout of more than 160 times defendant Tannenbaum’s base salary from FSAM for all of 2014.
Then, 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. Unrealized depreciation on the Company’s investments for the quarter had ballooned to $62 million, while its quarterly net realized losses were $17.6 million. 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 declined nearly 15% on volume of almost 11 million shares.
Plaintiff seeks to recover damages on behalf of all purchasers of FSC common stock during the Class Period (the “Class”). The plaintiff is represented by Robbins Geller, which has extensive experience in prosecuting investor class actions including actions involving financial fraud.
Robbins Geller, with 200 lawyers in ten offices, represents U.S. and international institutional investors in contingency-based securities and corporate litigation. The firm has obtained many of the largest securities class action recoveries in history and was ranked first in both the amount and number of shareholder class action recoveries in ISS’s SCAS Top 50 report for 2014. Please visit http://www.rgrdlaw.com/cases/fifthstreet/ for more information.