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More on the Third Avenue Junk Bond Blow-Up

March 31, 2016 Blog

As we reported in January, Zamansky LLC has filed a gross negligence-based lawsuit against investment firm Third Avenue Management, its founder Martin Whitman, and other company executives. The lawsuit, in which attorney Jacob Zamansky represents an individual investor who had $20,000 invested in the fund, is among a number of claims that are seeking more than $500 million in compensation for Third Avenue’s sudden junk bond mutual fund collapse in December 2015.

Here you will find more information about Third Avenue’s collapse. If you experienced investment losses with Third Avenue or any other junk bond fund, we invite you to contact us for a free consultation.

What Happened with Third Avenue Management?

In 2015, Third Avenue began to experience substantial losses. As more and more investors sought to pull out their money, Third Avenue’s management became unable to keep pace with the requests for redemptions. This was due primarily to their decision to invest heavily in junk bonds – risky investments that are difficult to sell off without offering a steep discount.

Third Avenue actually chose the riskiest of these risky investments, with approximately 70 percent of its assets invested in bonds rated “C” or below.

On December 10, Third Avenue announced that it was placing the fund’s remaining assets into a liquidation trust, and that its remaining investors would likely have to wait a year or longer in order to see their money, if they were going to see it at all. Third Avenue did this in an unprecedented fashion – without notifying the Securities and Exchange Commission (SEC), and without offering investors the opportunity to get out before the liquidation.

How Much Did Third Avenue Management Lose?

Third Avenue’s junk bond mutual fund lost approximately 30 percent of its value over the course of 2015. When the fund closed in January, it was down more than $2 billion from where it was just over a year prior.

According to MarketWatch, investors with funds held up in Third Avenue’s liquidation will be luck to see 75 percent of their original principal.

What Did Third Avenue Do Wrong?

Zamansky LLC’s lawsuit alleges that Martin Whitman and Third Avenue’s other executives were grossly negligent in overloading the fund’s portfolio with high-risk junk bonds. Not only should they have avoided overconcentration in illiquid junk bonds, but they also should have unloaded the fund’s liquid assets sooner in order to pay off Third Avenue’s investors.

As attorney Jacob Zamansky told Reuters, “Third Avenue had more than two years of warning that a high number of redemptions was coming, but kept buying illiquid, untraded securities.” He continued, “This conduct [was] reckless.”

Have You Lost Money in a Junk Bond Mutual Fund? Contact Zamansky LLC Today

If you suffered investment losses with Third Avenue Management or any other junk bond mutual fund, Zamansky LLC may be able to help you recover your losses. To speak with an experienced junk bond loss attorney about your case, call (212) 742-1414 or request a free consultation online now.