|Audit Intelligence

Amid shareholder litigation settlement, SEC issues subpoena to Fifth Street Asset Management

Subpoenas

On March 23, 2016, the SEC sent document subpoenas and document-preservation notices to the Company.

The subpoenas were issued pursuant to a formal order of private investigation which addresses (among other things):

  1. the valuation of FSC’s portfolio companies and investments,
  2. the expenses allocated or charged to FSC and FSFR,(iii) FSOF’s trading in the securities of publicly traded business-development companies,
  3. statements to the board, other representatives of pooled investment vehicles, investors, or prospective investors concerning the fair value of FSC’s portfolio companies or investments as well as expenses allocated or charged to FSC and FSFR,
  4. various issues relating to adoption and implementation of policies and procedures under the Investment Advisers Act of 1940 (the “Advisers Act”),
  5. statements and/or potential omissions in the entities’ SEC filings,
  6. the entities’ books, records, and accounts and whether they fairly and accurately reflected the entities’ transactions and dispositions of assets, and
  7. several other issues relating to corporate books and records.

Settlement of shareholder litigation

Fifth Street Asset Management Inc. (“FSAM” or the “Company”) previously disclosed that it has been named as a defendant in various securities class actions.

The proposed settlement of the FSC securities class actions calls for a payment of $14,050,000 to a settlement class consisting of persons and entities who purchased FSC common stock during the period from July 7, 2014 through February 6, 2015. Approximately 99% of the settlement amount will be paid from insurance coverage. The proposed settlement will be presented for approval to the United States District Court for the Southern District of New York.

The proposed settlement of the FSC shareholder derivative actions provides for Fifth Street Management LLC’s waiver of fees charged to FSC in the amount of $1,000,000 for each of ten consecutive quarters starting in January 2018 and maintenance of the previously announced decrease in Fifth Street Management’s base management fee from 2% to a maximum of 1.75% of gross assets (excluding cash and cash equivalents) for at least four years. The proposed settlement also calls for FSC to adopt certain governance and oversight enhancements. Those enhancements include provisions relating to equity ownership by FSC Board members, disclosure of executive compensation, director independence, valuation policies and processes, creation of a Board-level Credit Risk and Conflicts Committee at FSC, and increased consultation with outside advisers and independent third parties. Some of the undertakings and enhancements described above are subject to Fifth Street Management’s continuing as FSC’s investment adviser. FSC and the defendants further agreed that they would not oppose plaintiffs’ request for an award of $5,100,000 in attorneys’ fees and expenses, which will be paid from insurance coverage. The proposed settlement will be presented for approval to the United States District Court for the District of Connecticut.

 

 

 

 

The proposed settlement of the FSAM securities class action calls for a payment of $9,250,000 to a settlement class consisting of all persons and entities who purchased FSAM common stock pursuant or traceable to the Registration Statement issued in connection with FSAM’s initial public offering. The settlement amount will be paid from insurance coverage. The proposed settlement will be presented for approval to the United States District Court for the Southern District of New York.