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Tuesday, December 15, 2015

Will Galvin or the SEC Go After Third Avenue?

News summary by MFWire's editors

The Third Avenue [profile] pain continues, and this time the sources are in Massachusetts and Washington.

William "Bill" Galvin
Secretary of the Commonwealth of Massachusetts
Bloomberg, the Financial Times, and Reuters (twice) all report that yesterday Bill Galvin, Secretary of the Commonwealth of Massachusetts, says he is digging into the gating and planned liquidation of the now infamously bleeding Third Avenue Focused Credit Fund. And the Wall Street Journal reports that the SEC is looking into the situation, too.

Third Avenue shut the doors to the high yield bond mutual fund last week, with then-CEO David Barse describing the move as a way to proceed with a more orderly liquidation of a fund whose assets are not very liquid at the moment. Then yesterday Barse left Third Avenue, with a five-person management committee of existing Third Avenue executives stepping up to lead in Barse's stead.

Meanwhile, the WSJ cries foul over the fund being labeled "high yield," the FT wonders what such illiquid debt was doing inside a traditional mutual fund, and Bloomberg reveals that (like some giant fund firms) Third Avenue previously asked for approval for its mutual funds to make very short-term loans to each other in times of need (hypothetical loans that, the publication points out, wouldn't have been long enough duration to save the fund that later collapsed).

Per the WSJ, the folks at the SEC unsurprisingly aren't saying much about their investigation just yet.

"Commission staff is on site, and we continue to closely evaluate the fund's efforts to ensure it provides an orderly process that best protects investors," an SEC spokeswoman reportedly states.

As for Galvin, who regularly goes after various fund firms and other financial services players, he seems concerned about possible inequitable impact of Third Avenue's move to shut off redemptions from this high yield bond fund.

"Average investors do not expect to be cut off from trading in an open-end investment company," Galvin states. "My office is opening this investigation to determine when and how this decision was made and to determine the extent of Massachusetts investors who have been impacted by this unprecedented decision on the part of fund management." 

Edited by: Neil Anderson, Managing Editor

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