In re Fifth Street Finance Corp. Securities Litigation

Settled: February 17, 2017

A $14.05 million settlement in this securities class action against Fifth Street

On August 1, 2016, Labaton Sucharow, as lead counsel, announced that the Firm reached a settlement of $14.05 million on behalf of lead plaintiff Oklahoma Police Pension and Retirement System in a securities class action against Fifth Street Finance Corp. (FSC). FSC is a publicly traded specialty finance company that lends and invests in small and mid-sized companies, through the direction of its external asset manager, which is a subsidiary of Fifth Street Asset Management, Inc. (FSAM). At all relevant times, FSC provided approximately 90 percent of FSAM’s assets under management and was its primary source of revenue.

The amended complaint alleges that, from July 7, 2014 through February 6, 2015 (the class period), FSC, FSAM, and certain of FSC’s directors and officers, who also founded, owned and/or held senior positions at FSAM, engaged in a fraudulent scheme to artificially inflate FSC’s assets and investment income in order to increase FSAM’s revenue and valuation in the lead up to FSAM’s initial public offering (IPO) in October 2014. The defendants are alleged to have accomplished this by: (1) heavily investing FSC in increasingly risky and speculative investments, undermining the credit quality of FSC’s investment portfolio; (2) delaying the write-down of impaired investments and the placement of impaired investments on non-accrual status in order to create the appearance of increasing revenues for FSC and FSAM; and (3) systematically overstating the income generated by FSC’s investments and the fair value of its portfolio, all while providing investors with a false impression of FSC’s financial performance, investment quality, and outlook. Because FSAM is an investment management company with its revenues 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 FSAM shares could be sold to the public for the defendants’ benefit.

The case is In re Fifth Street Finance Corp. Securities Litigation, No. 15-cv-7759 (S.D.N.Y.). Lead plaintiff is Oklahoma Police and Pension Retirement System. The defendants are Fifth Street Finance Corp., Fifth Street Asset Management, Inc., Leonard M. Tannenbaum, Bernard D. Berman, Alexander C. Frank, Todd G. Owens, Ivelin M. Dimitrov, and Richard A. Petrocelli.

On February 9, 2015, only months after certain of the defendants reaped nearly $100 million in proceeds from the FSAM IPO—with defendant Tannenbaum alone receiving nearly $88 million—FSC reported its financial results for the first fiscal quarter of 2015 (ended December 31, 2014), revealing, among other things, that it had moved $106 million worth of investments to non-accrual status. The defendants also notified shareholders that unrealized depreciation on the company's investments increased to $62 million and quarterly net losses totaled $17.6 million. The company also declared that it would not issue a dividend for February 2015, and future dividend payments would be decreased by more than 30 percent in connection with a more “conservative” dividend policy.

As a result of the defendants’ disclosures, 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 percent.

Submit Proof of Claim
If you purchased or otherwise acquired FSC common stock during the period from July 7, 2014 through February 6, 2015, inclusive (the Class Period), you may be entitled to receive money from the proposed settlement.

To be eligible for a payment, you must submit a Claim Form by March 27, 2017 in accordance with the instructions set forth in the Notice.

Fairness Hearing
A Fairness Hearing was held on February 16, 2017 at 2:45 p.m. in Courtroom 21B at the United States District Court for the Southern District of New York, 500 Pearl Street, New York, NY 10007.

If you have questions about the settlement, please contact Labaton Sucharow at or 1-888-219-6877, or contact the Claims Administrator, A.B. Data, Ltd. at 866-217-4461.