NEW YORK, Oct. 02, 2015 (GLOBE NEWSWIRE) -- Gainey McKenna & Egleston announces that a class action lawsuit has been filed in the United States District Court for the Southern District of New York on behalf of purchasers of the securities of Fifth Street Finance Corp. (“FSC” or the “Company”) (Nasdaq:FSC) between July 7, 2014 and February 6, 2015, inclusive (the “Class Period”). The 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”).
The Complaint alleges that Defendants throughout the Class Period engaged in a fraudulent scheme to artificially inflate FSC’s assets and investment income to increase Fifth Street Asset Management’s (“FSAM”) revenue by: (1) pushing FSC into increasingly risky investments at unsustainable leverage levels; (2) delaying the write down of impaired investments to create the appearance of increasing revenues for FSAM; and (3) systematically overstating the income generated by FSC’s investments and the fair value of its portfolio, while simultaneously providing the investing public 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 dropped $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.
If you wish to serve as lead plaintiff, you must move the Court no later than November 30, 2015. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. If you wish to join the litigation, or to discuss your rights or interests regarding this class action, please contact Thomas J. McKenna, Esq. or Gregory M. Egleston, Esq. of Gainey McKenna & Egleston at (212) 983-1300, or via e-mail at tjmckenna@gme-law.com or gegleston@gme-law.com.
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