Third Avenue Focused Credit Fund (NASDAQ: TFCIX and NASDAQ:TFCVX) Investor Securities Class Action Lawsuit 01/27/2016

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Company Name(s): 
Third Avenue Focused Credit Fund
Case Name: 
Third Avenue Focused Credit Fund Shareholder Class Action Lawsuit 01/27/2016
Case Status: 
Lawsuit Filed
Case Status: 
Settlement Proposed
Affected Securities
MUTF: TFCIX
NASDAQ: TFCIX
MUTF: TFCVX
NASDAQ: TFCVX
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
01/27/2016
Class Period Begin: 
03/01/2013
Class Period End: 
12/10/2015
Court of Filing: 
U.S. District Court for the Central District of California
Deadline To File for Lead: 
03/29/2016
Date Settled: 
04/06/2017
Settlement Amount: 
$14,250,000
Deadline to Participate in Settlement: 
07/19/2017
Summary: 

April 6, 2017 - The court preliminarily approved the settlement.

March 31, 2017 - Parties filed a stipulation of settlement.

July 12, 2016 - The lead plaintiff filed an amended consolidated complaint.

May 13, 2016 - Lead plaintiff and lead counsel were appointed and all cases were consolidated.

April 12, 2016 - The case was transferred to the U.S. District Court for the Southern District of New York.

March 29, 2016 - Lead plaintiff motions were filed.

January 27, 2016 - An investor in shares of Third Avenue Focused Credit Fund (NASDAQ: TFCIX and NASDAQ: TFCVX) filed a lawsuit in the U.S. District Court for the Central District of California over alleged violations of Federal Securities Laws by Third Avenue Focused Credit Fund in connection with certain allegedly false and misleading statements made between March 1, 2013 and December 10, 2015.

According to the complaint the plaintiff alleges on behalf of purchasers of Third Avenue Focused Credit Fund (NASDAQ: TFCIX) common shares between March 1, 2013 and December 10, 2015, that the defendants violated Federal Securities Laws. More specifically, the plaintiff claims that in violation of the Securities Act of 1933, the prospectuses and registration statements of this fixed income mutual fund contained material false or misleading statements regarding the Fund's liquidity.

The plaintiff says that a key feature of open-end funds is that they allow investors to redeem their shares daily and that funds therefore must maintain assets that are sufficiently liquid to meet shareholder redemptions.

According to the lawsuit, the Third Avenue Focused Credit Fund promised investors that it would place no more than 15% of its assets in illiquid securities, securities that could not be sold promptly at or near its carrying value.

However, the plaintiff claims that an analysis of the Fund's holdings in 2013, 2014, and 2015 has revealed that the Fund consistently held more than 15% of its net assets in illiquid securities and that the Fund's excessive illiquidity meant that it could not promptly sell assets to meet growing redemptions without unloading them at fire sale prices, leading it to suspend redemptions and shut down the Fund on December 10, 2015.

On December 9, 2015, Third Avenue Management, LLC, managers of Third Avenue Focused Credit Fund, announced to shareholders of their intent to halt all redemptions.

Some analysts say that they had to stop redemptions to allow for an orderly liquidation. Following this news, on December 14, 2015, it was reported that the U.S. Securities and Exchange Commission (“SEC”) is looking into the circumstances of the liquidation freeze.

The mutual fund invested in high yielding loans and securities issued by struggling companies. In a 2012 investor commentary a fund manager challenged the illiquidity “myth” of distress investing and reassured investors that keeping excess cash on hand and limiting assets to less than $3 billion would allow the fund to meet its financial obligations.

In July of 2014, the Third Avenue Focused Credit Fund reached $3.5 billion in assets, exceeding the limits set forth in the portfolio strategy. As investors began withdrawing their money the fund reportedly lost nearly 30% through December 9 of 2015.