Numerous lawsuits have been filed against Third Avenue over the collapse of its Focused Credit Fund.  Most recently, an investor brought claims under Delaware State law alleging that Third Ave. inflated the value of securities held by the fund and violated the product’s prospectus and SEC guidelines regarding illiquid holdings.  Additionally, there have been six other cases filed in state courts with most moved to federal court.  The investor brought suit alleging that Third Ave. inaccurately reported their assets and lost nearly $1 billion from 2014 through 2015.  As of now, it is unsure if the investor’s suit will be moved to federal court based on the main point of the case.  If the claims represent a misrepresentation or omissions with the purchase of securities, the case will be moved to federal court, if not it will remain in state court.

“Under SLUSA (Securities Litigation Uniform Standards Act), the judge will examine the core of the claims regardless of how styled, and if their essence is securities fraud, the case may be removed to federal court,”   says Michael Lange, the counsel of securities litigation at FRT.  “If at their core the claims involve a breach of contract, they may stay in Delaware court.”

If the judge moves the case to federal court, it will be consolidated with the currently pending litigation in the courts.  “Clearly the plaintiff has a desire to be in Delaware court and has drafted the complaint in an effort to maximize the chance of staying there,” says Lange.  “Ultimately the judge will decide if it remains there.”

As this case is new, it will be interesting to see if this case stays in the Delaware court of if it is moved to federal. To learn more about the litigation of Third Avenue’s fund, click here.

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