Robbins Geller Rudman & Dowd LLP Files Class Action Suit Against Fifth Street Finance Corp.

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Oct 01, 2015, 06:25 ET

SAN DIEGO, Oct. 1, 2015 /PRNewswire/ -- Robbins Geller Rudman & Dowd LLP ("Robbins Geller") (http://www.rgrdlaw.com/cases/fifthstreet/) today announced that a class action has been commenced 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").

If you wish to serve as lead plaintiff, you must move the Court no later than 60 days from today. If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact plaintiff's counsel, Darren Robbins of Robbins Geller at 800/449-4900 or 619/231-1058, or via e-mail at [email protected]. If you are a member of this class, you can view a copy of the complaint as filed or join this class action online at http://www.rgrdlaw.com/cases/fifthstreet/. 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.

The complaint charges FSC, Fifth Street Asset Management, Inc. ("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 during 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, the complaint alleges that, among other things, 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 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.

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. 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.

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.

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SOURCE Robbins Geller Rudman & Dowd LLP