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Eversheds Sutherland (US) LLP
700 Sixth
Street, NW, Suite 700
Washington, DC 20001-3980
D: +1 202.383.0176
F: +1 202.637.3593
stevenboehm@
eversheds-sutherland.com
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December 29, 2017
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, D.C. 20549
Re:
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Form 40-33 Civil Action Documents Filed Against Triangle Capital Corporation et al. (File No. 814-00733)
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Ladies and Gentlemen:
On behalf of Triangle
Capital Corporation (the
Company
), and pursuant to Section 33 of the Investment Company Act of 1940, as amended, enclosed for filing please find a copy of
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the class action complaint filed by Elias Dagher, Individually and on Behalf of All Others Similarly Situated, Plaintiff, vs. Triangle Capital Corporation, E. Ashton Poole, Steven C. Lilly and Garland S. Tucker, III,
Defendants in the United States District Court for the Southern District of New York, involving the Company and certain officers and directors of the Company that has been delivered to the Company; and
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the class action complaint filed by Gary W. Holden, Individually and on Behalf of All Others Similarly Situated, Plaintiff, vs. Triangle Capital Corporation, E. Ashton Poole, Steven C. Lilly and Garland S. Tucker, III,
Defendants in the United States District Court for the Southern District of New York, involving the Company and certain officers and directors of the Company that has been delivered to the Company.
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If you have any questions regarding this submission, please do not hesitate to call Harry Pangas at (202) 383-0805 or me at
(202) 383-0176.
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Sincerely,
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/s/ Steven B. Boehm
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Steven B. Boehm
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cc:
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E. Ashton Poole,
Triangle Capital Corporation
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Steven C. Lilly,
Triangle Capital Corporation
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Garland S. Tucker, III,
Triangle Capital Corporation
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Harry Pangas,
Eversheds Sutherland (US) LLP
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ELIAS DAGHER, Individually and on Behalf
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Civil Action No.
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of All Others Similarly Situated,
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CLASS ACTION
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Plaintiff,
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COMPLAINT FOR VIOLATIONS OF THE
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vs.
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FEDERAL SECURITIES LAWS
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TRIANGLE CAPITAL CORPORATION, E.
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ASHTON POOLE, STEVEN C. LILLY and
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GARLAND S. TUCKER, III,
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Defendants.
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DEMAND FOR JURY TRIAL
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Plaintiff, individually and on behalf of all others similarly situated, by plaintiffs
undersigned attorneys, for plaintiffs complaint against defendants, alleges the following based upon personal knowledge as to plaintiff and plaintiffs own acts and upon information and belief as to all other matters based on the
investigation conducted by and through plaintiffs attorneys, which included, among other things, a review of U.S. Securities and Exchange Commission (SEC) filings by Triangle Capital Corporation (Triangle or the
Company), Company press releases, earning calls, analyst reports and media reports about the Company. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of all purchasers of Triangle common stock between May 7, 2014 and November 1, 2017,
inclusive (the Class Period), seeking remedies under the Securities Exchange Act of 1934 (the 1934 Act).
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the 1934 Act, 15 U.S.C. §§78j(b) and
78t(a), and Rule
10b-5,
17 C.F.R.
§240.10b-5,
promulgated thereunder by the SEC.
3. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §1331 and §27 of the 1934 Act.
4. Venue is proper in this District pursuant to §27 of the 1934 Act and 28 U.S.C. §1391(b). Many of the acts charged herein,
including the dissemination of materially false and misleading information, occurred in substantial part in this District. In addition, the common stock of Triangle trades in this District on the New York Stock Exchange (NYSE).
- 1 -
THE PARTIES
5. Plaintiff Elias Dagher purchased Triangle common stock during the Class Period as described in the Certification attached hereto and
incorporated herein by reference and suffered damages.
6. Defendant Triangle is a business development company.
7. Defendant E. Ashton Poole (Poole) is President, Chief Executive Officer (CEO) and Chairman of the Board of Directors
(the Board) of Triangle. He assumed the position of CEO in February 2016, prior to which he was the Chief Operating Officer (COO) of the Company.
8. Defendant Steven C. Lilly (Lilly) is Chief Financial Officer (CFO), Secretary and a director of Triangle. He is also
a
co-founder
of the Company.
9. Defendant Garland S. Tucker, III (Tucker) is a
director and
co-founder
of Triangle. He was Chairman of the Board until May 2017 and CEO of the Company until February 2016.
10. The defendants referenced above in
¶¶7-9
are collectively referred to herein as the
Individual Defendants. The Individual Defendants made, or caused to be made, false and misleading statements that artificially inflated the price of Triangle common stock during the Class Period.
11. The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of
Triangles quarterly reports, press releases and presentations to securities analysts, money and portfolio managers and institutional investors,
i.e
., the market. They were provided with copies of the Companys reports and press
releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions with the Company and their access to material
non-public
information available to them but not to the public, the Individual Defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the
positive representations being made were then materially false and misleading. The Individual Defendants are liable for the false and misleading statements pleaded herein.
- 2 -
SUBSTANTIVE ALLEGATIONS
12. Defendant Triangle is a specialty finance company that provides customized financing to lower middle market companies located primarily in
the United States. The Company focuses on lending to private companies with annual revenues between $10.0 million and $250.0 million.
13. Triangle is regulated as a business development company, or BDC, under the Investment Companies Act of 1940. The purported
investment objective of Triangle is to generate attractive returns by generating current income debt investments and capital appreciation equity- related investments. In turn, Triangle pays out this investment income in dividends to its
shareholders. The rate and amount of these dividend payments is critical to the markets valuation of Triangle.
14. The quality and
robustness of Triangles underwriting and valuation policies, practices and procedures are also critical to investors evaluating the Company. Triangle provides loans in small- to
mid-size
private
companies for which limited public information is available. Investors rely on Triangle to be able to appropriately value and price the risks associated with investing in these companies and to identify profitable investment opportunities so that it
can receive a return on its investments and avoid writing down assets or placing loans on
non-accrual.
15. During the Class Period, Triangle used an aggressive form of fair value accounting by which it recognized loan income before the
income was actually paid to the Company. Triangle did this in a variety of ways, including by recognizing
payment-in-kind
(PIK) interest provisions as income
even though such income may never actually be paid to the Company. PIK is contractually
- 3 -
deferred interest added to principal and generally due at the end of the loan term. When a borrower cannot pay normal interest terms, PIK provisions can be used in a refinanced loan to nominally
increase loan income while at the same time rendering that income more speculative as payment is deferred until the end of the loan term. This allowed Triangle to defer the recognition of losses and loan write-downs until later in the life of the
loan and to conceal poor loan performance.
MATERIALLY FALSE AND MISLEADING
STATEMENTS ISSUED DURING THE CLASS PERIOD
16. The Class Period begins on May 7, 2014. On that date, Triangle issued a press release announcing its financial results for the
quarter ended March 31, 2014. The release stated that the fair value of the Companys investment portfolio was $690 million at quarter end, with $438.6 million in total net assets. The release also stated that Triangle had made
$77.5 million in new investments during the quarter. The release quoted defendant Tucker, Triangles
then-CEO,
as stating: The first quarter represented the beginning of the more active
year we are expecting 2014 to be, with new portfolio investments totaling more than $77 million. . . . Our activity during the quarter supports our optimism for the year, as we believe the lower middle market is poised to provide attractive
investment opportunities during the balance of 2014. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not misleading
and free from fraud.
17. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the
call, defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Poole, who was then
Triangles COO, stated that the Company was
focusing
on
quality
over
quantity
in terms of [its]
investment pace per quarter, and that the Company was being particularly discriminate in how [it is] reviewing opportunities and
- 4 -
choosing to invest and turning away lower quality investment opportunities. Defendant Poole also stated that Triangle was passing on lower-quality B deals so that it could
focus on the A deals. Later, he continued in pertinent part as follows:
So I think we are thinking about it as a great way to
continue
to
prudently
invest
the
liquidity
that we have had over the last year
and the firepower that
we
ve reserved
for
a
more
fruitful
investing
environment,
which
we
believe
is
clearly
unfolding
or has unfolded as weve seen in Q1 and hopefully will continue to do so in Q2, Q3, and Q4.
18. On the conference call, defendant Lilly, who served as Triangles CFO, likewise described the Companys investing philosophy:
[T]he primary keys to a successful long-term track record in the [BDC] industry are to
maintain
on[e
s]
credit
focus,
remain
conservative
and
consistently
apply
an
underwriting
formula
that produces solid results.
19. On August 6,
2014, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2014. The release stated that the fair value of the Companys investment portfolio was $736.3 million at quarter end, with
$445.8 million in total net assets. The release also stated that Triangle had made $87.3 million in new investments during the quarter. The release quoted defendant Tucker as stating: The second quarter of 2014 was robust on
all fronts. We made $87.3 million of investments . . . . Again, it is an exciting time for Triangle and it gives me great pleasure to be able to share such good news with our investors. That same day, the Company filed its quarterly
results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
20. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Lilly stated:
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During 2014, as the market has naturally shifted back to a healthy amount of
M&A activity, we have found that our patience has been rewarded and
we have taken advantage of what we perceive to be high-quality investment opportunities at attractive price points
. As a result, as we enter the second half of the
year, we are becoming increasingly convinced that 2014 could end up being one of TCAPs most active years in terms of new investments.
21. On November 5, 2014, Triangle issued a press release announcing its financial results for the quarter ended September 30, 2014. The release
stated that the fair value of the Companys investment portfolio was $841.6 million at quarter end, with $547.4 million in total net assets. The release also stated that Triangle had made $180.8 million in new investments during
the quarter. The release quoted defendant Tucker as stating: The third quarter of 2014 was extremely active for Triangle. We originated a record $181 million of new investments . . . . That same day, the Company filed
its quarterly results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
22. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Tucker stated: [W]e are pleased that the
origination portion of our business is operating so well. Our investment pipeline has been robust all year, and
we
remain
very
pleased
with
the
quality
of
the
new
investments
weve made. Defendant Poole provided additional commentary on the purported quality of Triangles new investments during the quarter, stating in pertinent part as follows:
I think, obviously the question is always what is the quality of that flow, and which investments do we feel are the
right ones to pursue on behalf of our shareholders? And I can assure you that we spend quite a bit of time on that question.
And so when we think about pipeline, and when you guys think about pipeline, I think it really has to be measured in two ways.
One is just externally, how much or what is the amount of flow of opportunities coming in the door, and then the subset of that flow that we choose to pursue. And on both accounts,
I can safely say that our pipeline is healthy.
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23. On March 2, 2015, Triangle issued a press release announcing its financial results for the
fourth quarter and year ended December 31, 2014. The release stated that the fair value of the Companys investment portfolio was $887.2 million at year end, with $530.8 million in total net assets. In addition, the release stated
that Triangle had only 5.8% and 3.0% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made
$129 million in new investments during the fourth quarter. The release quoted defendant Tucker as stating: The fourth quarter represented a strong end to the year for Triangle Capital. We remained active in the investing market
[and] we generated a record amount of investment income . . . . As we move into 2015 we are pleased with the quality of our investment portfolio, the strength of our balance sheet, and the opportunities we see across the lower middle
market. That same day, the Company filed its quarterly and annual results on Form
10-K,
which defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
24. Also on March 2, 2015, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants
stressed the purported quality of the Companys investments and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Tucker stated: As we begin 2015, we are reminded that the
most successful BDCs are those that continually exercise corporate discipline in areas such as investment prudence and those that resisted certain temptations, such as growing their investment portfolios in an irrational way.
25. Similarly, defendant Poole stressed that Triangle had been selective in its investments and focused on quality over quantity in securing
sound investments, stating in pertinent part as follows:
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In the lower middle market, we are finding that financial sponsors are entering
2015 with a very optimistic view. For the first time in a number of years, there is significant inventory available in terms of both first-time sellers of private companies coupled with a healthy backlog of
sponsor-to-sponsor
trades, which in recent years have become a meaningful component of the market.
Balancing against this robust level of inventory is
our internal view that not every company meets our underwriting
standards
. And so while our deal teams are very busy analyzing a healthy number of opportunities, you can expect that
we will continue to remain focused on quality versus quantity
in terms of new investment activity.
26. On May 6, 2015, Triangle issued a press release announcing its financial results for the quarter ended March 31, 2015. The release stated
that the fair value of the Companys investment portfolio was $877.4 million at quarter end, with $519.6 million in total net assets. In addition, the release stated that Triangle had only 6.1% and 2.7% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $98.2 million in new investments during the
quarter. The release quoted defendant Tucker as stating: We are pleased that we were able to follow a strong fourth quarter of 2014 with another strong quarter to begin 2015. . . .
We
remain
confident
in
both
the
overall
quality
of
our
investment
portfolio
and the investment opportunities in the lower middle market for the remainder of 2015.
That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
27. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Poole stated that he and management feel very
good about Triangles new investments during the quarter, and that the Company was very focused on maximizing yields on behalf of [its] investors. Similarly, defendant Lilly stated:
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[Q]uality over quantity
, . . . thats what we try to focus on, and always have, and I think
that will be the biggest guide post
as we move forward.
28. On August 5, 2015, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2015. The release
stated that the fair value of the Companys investment portfolio was $884.9 million at quarter end, with $514.8 million in total net assets. In addition, the release stated that Triangle had only 3.1% and 1.6% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $65.1 million in new investments during the
quarter. The release quoted defendant Tucker as stating: The second quarter was another active quarter for Triangle. . . . Our expanded balance sheet enables Triangle to focus on new portfolio opportunities during the remainder of
2015. That same day, the Company filed its results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
29. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Tucker stated: [W]e
decided
to
pass
on a greater percentage of transactions during the first half of the year
rather
than
stretch
our
credit
metrics
in a manner that would not be consistent with our historical underwriting standards. Defendant Lilly continued on this same theme in
response to an analyst question, stating: I think thematically what you continue to hear from us is,
we
re
not
trying
to
grow
the
portfolio
purely
for
growth
. Say, were
trying to find the best risk adjusted returns we can.
30. On November 4, 2015, Triangle issued a press release announcing its
financial results for the quarter ended September 30, 2015. The release stated that the fair value of the Companys
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investment portfolio was $968.1 million at quarter end, with $515.7 million in total net assets. In addition, the release stated that Triangle had only 2.0% and 0.7% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $189.2 million in new investments during the
quarter. The release quoted defendant Tucker as stating: The third quarter was an extremely active quarter for Triangle. The recent volatility in the broader credit markets has accrued to our benefit as
we were able to originate a
record level of new investments in high quality companies
during the quarter. Needless to say, we are pleased that we exercised patience during the first half of the year and maintained sufficient liquidity to take advantage of what we
perceive to be an opportune time in the investing market. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Tucker and Lilly certified were accurate, not
misleading and free from fraud.
31. The next day, Triangle held an earnings call with analysts and investors to discuss its financial
results. On the call, defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, defendant Tucker
stated: As we move to the end of 2015, and begin to look forward to 2016, I believe Triangle has successfully navigated this rough patch
with
the
same
measure
of
discipline
and
focus
that our team employed to navigate the success- filled days and
quarters before. On the call defendant Lilly also made the point that the Company was selectively choosing investments that promised the best risk-adjusted returns pursuant to a robust underwriting process, stating in pertinent part as
follows:
In terms of how
we feel about the current originations, the de facto answer is, we feel very good about
them
or we would not have made the investments to begin with. We look at a lot of opportunities. As you have heard Ashton say on these calls before, it is not unusual for us to have $2 billion of total flow in a single quarter that we
are filtering through in terms of the total consideration.
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So,
there is a lot of filtering that goes on
. We tend to close
somewhere between 3% and 5% of what we look at. We are very much aligned with that this quarter and I think feel really good about those.
32. Defendant Poole also represented that Triangle had expanded its investments into attractive opportunities by focusing on credit discipline,
stating in pertinent part as follows:
[W]e are pleased to have been cautious during the first half of the year and that we held onto our
liquidity to be able to put us in a position to achieve what we believe is a very opportunistic time in the market. . . .
By focusing on our key sponsor relationships, we believe we can better target long-term returns for shareholders by
operating within our credit discipline
and maintaining our focus.
33. In February 2016, Triangle announced that defendant
Poole would be taking over as CEO of the Company, while defendant Tucker would continue to serve as Chairman of the Board.
34. On February
24, 2016, Triangle issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2015. The release stated that the fair value of the Companys investment portfolio was $977.3 million at year
end, with $508.4 million in total net assets. In addition, the release stated that Triangle had only 2.0% and 0.7% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and
at fair value, respectively. The release also stated that Triangle had made $101.5 million in new investments during the fourth quarter. The release quoted defendant Poole as stating: We are pleased to report a strong finish to 2015
. . . . As we move into 2016, we believe our investing platform is well positioned to continue capitalizing on the attractive opportunities the lower middle market provides. That same day, the Company filed its quarterly and annual
results on Form
10-K,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
35. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, defendants stressed
the purported quality of the Companys investments and the robustness of Triangles underwriting and risk assessment policies and
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procedures. For example, defendant Poole stated: 2015 for Triangle was marked by several notable items. First,
we excelled in originating high-quality, new investments in the lower
middle market
, as 2015 represented our second-most active investing year on record, with over $450 million in total capital deployed.
36. On May 4, 2016, Triangle issued a press release announcing its financial results for the quarter ended March 31, 2016. The release stated
that the fair value of the Companys investment portfolio was $940 million at quarter end, with $504.3 million in total net assets. In addition, the release stated that Triangle had only 3.6% and 0.9% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $11.8 million in new investments during the
quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
37. On August 3, 2016, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2016. The release stated
that the fair value of the Companys investment portfolio was $930.8 million at quarter end, with $498.3 million in total net assets. In addition, the release stated that Triangle had only 5.6% and 2.2% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $63.6 million in new investments during the
quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
38. In October 2016, Triangle announced that Brent P.W. Burgess was resigning his positions as the Companys Chief Investment Officer and
a member of the Board.
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39. On November 2, 2016, Triangle issued a press release announcing its financial results for the
quarter ended September 30, 2016. The release stated that the fair value of the Companys investment portfolio was $947.7 million at quarter end, with $619.4 million in total net assets. In addition, the release stated that Triangle
had only 3.9% and 2.1% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $88.4 million in
new investments during the quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
40. On February 22, 2017, Triangle issued a press release announcing its financial results for the fourth quarter and year ended December 31,
2016. The release stated that the fair value of the Companys investment portfolio was $1.04 billion at year end, with $611.2 million in total net assets. In addition, the release stated that Triangle had only 3.5% and 1.5% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $155.6 million in new investments during the
fourth quarter. That same day, the Company filed its quarterly and annual results on Form
10-K,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
41. On May 3, 2017, Triangle issued a press release announcing its financial results for the quarter ended March 31, 2017. The release stated
that the fair value of the Companys investment portfolio was $1.13 billion at quarter end, with $729.2 million in total net assets. In addition, the release stated that Triangle had only 4.2% and 2.2% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $161.5 million in new investments during the
quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
- 13 -
42. The statements referenced in
¶¶16-32,
34-37,
39-41
were materially false and misleading because they misrepresented and failed to disclose the following adverse facts, which were known to defendants or recklessly
disregarded by them:
(a) that, as early as 2013, Triangles investment professionals had internally recommended moving away from
mezzanine loan deals due to changes in the market that no longer made these investments attractive risk-reward opportunities;
(b) that the
Companys former CEO, defendant Tucker, had ignored the advice of Triangles investment professionals to chase higher short-term yields by causing Triangle to invest in mezzanine debt despite the poor quality of the loans and their
increased risk of defaults and non- accruals;
(c) that the Companys entire vintage of 2014 and 2015 investments were at substantial
risk of
non-accrual
as a result of the poor quality of the investments and deficient underwriting practices in place at the time of the investments;
(d) that more than 13% of Triangles investment portfolio at cost was at risk of
non-accrual
and,
thus, the fair value of the Companys asset portfolio was artificially inflated;
(e) that Triangle had materially understated the
number of loans performing below expectations and/or in
non-accrual
and had delayed writing down impaired investments;
(f) that Triangle failed to implement effective underwriting policies and practices to ensure it received appropriate risk-adjusted returns on
its investments; and
(g) that, as a result of (a)-(f), above, Triangles business, prospects and ability to maintain its dividend
level of $0.45 were materially impaired.
- 14 -
43. On August 2, 2017, Triangle issued a press release announcing its financial results for the
quarter ended June 30, 2017. The release stated that the fair value of the Companys investment portfolio was $1.17 billion at quarter end, with $707.9 million in total net assets. In addition, the release revealed significant
deterioration in the credit quality of the Companys portfolio. The release revealed that Triangle had moved one investment to
full-non-accrual
status from PIK non-
accrual and that the amount of full
non-accrual
assets in the Companys portfolio had increased to 5.4% and 2.5% as a percentage of the Companys total portfolio at cost and at fair value,
respectively. Moreover, the Company disclosed that it had moved two investments to PIK non- accrual status, increasing the amount of PIK
non-accruals
as a percentage of the Companys total portfolio. The
Company also revealed only $0.41 in net investment income per share, which was below the Companys $0.45 per share dividend, and $26.2 million in net unrealized depreciation on its investment portfolio.
44. On this news, the price of Triangle stock declined
nearly 15%
, or $2.56 per share, from $17.19 per share on August 2, 2017,
to close at $14.63 per share by August 4, 2017, on abnormally high trading volume.
45. However, the price of Triangle common stock
remained artificially inflated, as defendants continued to conceal the true risks to Triangles business and prospects as a result of the impaired credit quality of its portfolio, defective underwriting practices and the facts and circumstances
surrounding Triangles 2014 and 2015 investments. For example, on the quarterly earnings call, defendant Lilly stated that it was likely that only two of the five portfolio companies carried below 80% of cost on Triangles portfolio would
go on
non-accrual
in the next two to four quarters, and only one that carried above 80% of cost might it might go on nonaccrual during that same time frame.
- 15 -
46. Similarly, in response to an analyst question about how Triangle would minimize loss or
maximize recoveries from its legacy investments, defendant Poole stated that Triangle had recently improved its credit monitoring capabilities and reassured investors that Triangle had enhanced its abilities to identify trouble areas in its
portfolio, stating in pertinent part as follows:
As far as [the] portfolio management side of the equation, I think you all know that Jeff
Dombcik is our Chief Credit Officer and is head of our portfolio management process. We brought on an additional resource to support Jeff in that effort I will say that Jeffs done a terrific job of going back through and examining all of our
prior tools and screens and processes for getting ahead in forecasting potential trouble spots in the portfolio by industry and by company, and
we
now
have
a
much,
much
greater
visibility
or
predictability
going
forward
of
where
we
see
potential
issues.
Jeff is [sic] also applied what I think is just incredible focus and attention on the problem situations that we do have, and has brought great leadership and trying to work through the situations and work
either constructively with sponsors in terms of getting to solutions that benefit our shareholders or in cases where we need to exercise more influence directly on our own accord to generate the best outcome for tick up in our shareholders. So
collectively, the 2 sides of the coin are much improved in my view and resulting [in] a better performance for the company and for our shareholders.
47. The statements in ¶¶43,
45-46
were materially false and misleading for the reasons stated
in ¶42.
48. Then, on November 1, 2017, Triangle issued a press release announcing its financial results for the quarter ended
September 30, 2017. The release revealed that the fair value of the Companys investment portfolio had declined to $1.09 billion, a decline of nearly 7% from the prior quarter. In addition, the Company revealed that it had suffered
$8.9 million in net realized losses and $65.8 million in net unrealized depreciation to its portfolio during the quarter. The Company also disclosed that it had only earned $0.36 per share in net investment income and that it was slashing
its quarterly dividend to $0.30 per share, a decline of
33%
from the prior quarter. Most shocking, Triangle revealed that it had placed
seven
new investments on
non-accrual
status during the quarter, effectively acknowledging that those assets were unlikely to generate future returns, and that the amount of investments on
non-accrual
had
ballooned to 13.4% and 4.7%
of the Companys total portfolio at cost and at fair value, respectively.
- 16 -
49. During the earnings call to discuss the results, defendants further surprised investors by
revealing that the entire vintage of the Companys investments in 2014 and 2015 had suffered from poor underwriting and investment practices and that the Company had ignored the advice of its own internal investment advisors at the time the
investments were made, who had recommended against the strategy ultimately undertaken by the Company. Defendant Poole explained what had occurred behind the scenes, which dramatically differed from the previous representations he and the other
defendants had made to investors, stating in pertinent part as follows:
During the period from early 2013 through the end of 2015, as
large amounts of capital poured into the direct lending space, investment structures and pricing in the lower middle market and broader middle market changed rapidly. Perhaps most notably by unitranche depth becoming the security of choice by
financial sponsors. In addition, leverage levels began moving up in a meaningful way. The combination of these factors resulted in a rapid decline in pricing as interest rate compression began affecting the leverage lending world.
Our
investment
professionals
were
aware
of
these
changes
and
recommended
to
our
former
CEO
to
begin
moving
away
from
mezzanine
structures
and into lower yielding but more secure second lien unitranche and senior structures. Their reasoning was simple. Companies in our target market were gaining access to additional forms of capital on terms more favorable than what they could
have achieved in the past and as a result the traditional risk-reward equation for mezzanine debt did not appear as attractive as it previously had. Unfortunately the strategic decision was made not to move off balance sheet in a meaningful way and
TCAP continued to lead with a yield focused mezzanine strategy. In the process of doing so
we
added
incremental
exposure
to
a
number
of
riskier
credits,
many
of
which
are
now
underperforming
. . . . However, the adherence to a majority focused mezzanine investment strategy
when during a period of massive change in the market,
other
investment
strategies
were
available
which
provided
a
better
risk-reward
equation
was
the
wrong
strategic
call.
We are continuing to act decisively and aggressively with the goal of moving through our
underperforming investments as quickly as possible but at this point we acknowledge that as a firm we are being held back primarily by our 2014 and 2015 investment vintages.
- 17 -
50. During the call, analysts reacted with shock and frustration. An analyst even asked defendant
Lilly to explain why the Company had not clawed back the executive compensation of defendant Tucker and Triangles Chief Investment Officer at the time. Other analysts suggested that the Company needed to completely revamp its underwriting and
valuation practices to improve the accuracy of its marks and suggested that an independent third party needed to review Triangles portfolio, implying that the valuations given by management could not be trusted.
51. On this news, the price of Triangle stock declined
nearly 21%
, or $2.57 per share, from $12.25 per share on November 1, 2017,
to close at $9.68 per share by November 2, 2017, on abnormally high trading volume.
LOSS CAUSATION AND ECONOMIC LOSS
52. During the Class Period, as detailed herein, defendants engaged in a scheme to deceive the market and a course of conduct that
artificially inflated the prices of Triangle common stock and operated as a fraud or deceit on purchasers of Triangle common stock. As detailed above, when the truth about Triangles misconduct was revealed, the value of the Companys
stock declined precipitously as the prior artificial inflation no longer propped up the stocks price. The declines in Triangles share price were the direct result of the nature and extent of defendants fraud finally being revealed
to investors and the market. The timing and magnitude of the share price declines negate any inference that the loss suffered by plaintiff and other members of the Class was caused by changed market conditions, macroeconomic or industry factors
or Company specific facts unrelated to the defendants fraudulent conduct. The economic loss,
i.e.
, damages, suffered by plaintiff and other Class members, was a direct result of defendants fraudulent scheme to artificially
inflate the price of the Companys stock and the subsequent significant decline in the value of the Companys stock when defendants prior misrepresentations and other fraudulent conduct were revealed.
53. At all relevant times, defendants materially false and misleading statements or omissions alleged herein directly or proximately
caused the damages suffered by plaintiff and other Class members. Those statements were materially false and misleading through their failure to
- 18 -
disclose a true and accurate picture of Triangles business, operations and financial condition, as alleged herein. Throughout the Class Period, defendants issued materially false and
misleading statements and omitted material facts necessary to make defendants statements not false or misleading, causing the price of Triangles stock to be artificially inflated. Plaintiff and other Class members purchased Triangle
stock at those artificially inflated prices, causing them to suffer damages as complained of herein.
APPLICABILITY OF PRESUMPTION OF
RELIANCE:
FRAUD-ON-THE-MARKET
DOCTRINE
54. At all relevant times, the market for Triangle common stock was an efficient market for the following reasons, among
others:
(a) Triangle stock met the requirements for listing, and was listed and actively traded on the NYSE, a highly efficient and
automated market;
(b) according to the Companys Form
10-Q,
filed on November 1, 2017, the
Company had approximately 47.7 million common shares outstanding, demonstrating a very active and broad market for Triangle common stock;
(c) as a regulated issuer, Triangle filed periodic public reports with the SEC;
(d) Triangle regularly communicated with public investors via established market communication mechanisms, including the regular dissemination
of press releases on the national circuits of major newswire services, via the Internet and through other wide-ranging public disclosures; and
(e) unexpected material news about Triangle was rapidly reflected in and incorporated into the Companys stock price during the
Class Period.
- 19 -
55. As a result of the foregoing, the market for Triangle common stock promptly digested current
information regarding Triangle from publicly available sources and reflected such information in Triangles stock price. Under these circumstances, all purchasers of Triangle common stock during the Class Period suffered similar injury
through their purchase of Triangle common stock at artificially inflated prices, and a presumption of reliance applies.
NO SAFE HARBOR
56. Defendants false or misleading statements during the Class Period were not forward- looking statements
(FLS), or were not identified as such by defendants, and thus did not fall within any Safe Harbor.
57.
Triangles verbal Safe Harbor warnings accompanying its oral FLS issued during the Class Period were ineffective to shield those statements from liability.
58. Defendants are also liable for any false or misleading FLS pleaded because, at the time each FLS was made, the speaker knew the FLS was
false or misleading and the FLS was authorized and/or approved by an executive officer of Triangle who knew that the FLS was false. Further, none of the historic or present tense statements made by defendants were assumptions underlying or relating
to any plan, projection or statement of future economic performance, as they were not stated to be such assumptions underlying or relating to any projection or statement of future economic performance when made.
CLASS ACTION ALLEGATIONS
59. Plaintiff brings this action on behalf of all purchasers of Triangle common stock during the Class Period who were damaged thereby
(the Class). Excluded from the Class are the defendants and their immediate families, the officers and directors of the Company and their immediate families, their legal representatives, heirs, successors or assigns, and any entity
in which any of the defendants have or had a controlling interest.
- 20 -
60. The members of the Class are so numerous that joinder of all members is impracticable.
Throughout the Class Period, Triangle common stock was actively traded on the NYSE. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes
that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Triangle or its transfer agent and may be notified of the pendency of this action
by mail, using the form of notice similar to that customarily used in securities class actions. Upon information and belief, these shares are held by hundreds or thousands of individuals located geographically throughout the country. Joinder would
be highly impracticable.
61. Plaintiffs claims are typical of the claims of the members of the Class as all members of the
Class are similarly affected by defendants wrongful conduct in violation of the federal laws complained of herein.
62.
Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those
of the Class.
63. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely
affecting individual members of the Class. Among the questions of law and fact common to the Class are:
(a) whether the federal
securities laws were violated by defendants acts as alleged herein;
(b) whether defendants acted knowingly or with deliberate
recklessness in issuing false and misleading statements;
(c) whether the price of Triangle common stock during the Class Period was
artificially inflated because of defendants conduct complained of herein; and
- 21 -
(d) whether the members of the Class have sustained damages and, if so, the proper measure
of damages.
64. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy
since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to
individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.
COUNT I
For Violation of §10(b) of the 1934 Act and Rule
10b-5
Against All Defendants
65. Plaintiff incorporates the foregoing paragraphs by reference.
66. During the Class Period, defendants disseminated or approved the false or misleading statements specified above, which they knew or
recklessly disregarded were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
67. Defendants violated §10(b) of the 1934 Act and Rule
10b-5
in that they:
(a) Employed devices, schemes and artifices to defraud;
(b) Made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; or
(c) Engaged in acts, practices and a course of business that operated as a
fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of Triangle common stock during the Class Period.
- 22 -
68. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for Triangle common stock. Plaintiff and the Class would not have purchased Triangle common stock at the prices they paid, or at all, if they had been aware that the market prices had been
artificially and falsely inflated by defendants misleading statements.
69. As a direct and proximate result of defendants
wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of Triangle common stock during the Class Period.
COUNT II
For Violation
of §20(a) of the 1934
Act Against All Defendants
70. Plaintiff incorporates the foregoing paragraphs by reference.
71. During the Class Period, defendants acted as controlling persons of Triangle within the meaning of §20(a) of the 1934 Act. By
virtue of their positions and their power to control public statements about Triangle, the Individual Defendants had the power and ability to control the actions of Triangle and its employees. Triangle controlled the Individual Defendants and its
other officers and employees. By reason of such conduct, defendants are liable pursuant to §20(a) of the 1934 Act.
PRAYER FOR
RELIEF
WHEREFORE, plaintiff prays for judgment as follows:
A. Determining that this action is a proper class action, designating plaintiff as Lead Plaintiff and certifying plaintiff as class
representative under Rule 23 of the Federal Rules of Civil Procedure and plaintiffs counsel as Lead Counsel;
B. Awarding plaintiff
and the members of the Class damages and interest;
C. Awarding plaintiffs reasonable costs, including attorneys fees; and
- 23 -
D. Awarding such equitable/injunctive or other relief as the Court may deem just and proper.
JURY DEMAND
Plaintiff
demands a trial by jury.
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DATED: November 21, 2017
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ROBBINS GELLER RUDMAN
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& DOWD LLP
SAMUEL H.
RUDMAN
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/s/ Samuel H. Rudman
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SAMUEL H. RUDMAN
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58 South Service Road, Suite 200
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Melville, NY 11747
Telephone:
631/367-7100
631/367-1173
(fax)
srudman@rgrdlaw.com
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ROBBINS GELLER RUDMAN
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& DOWD LLP
DAVID C.
WALTON
BRIAN E. COCHRAN
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone:
619/231-1058
619/231-7423
(fax)
davew@rgrdlaw.com
bcochran@rgrdlaw.com
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JOHNSON FISTEL, LLP
FRANK J. JOHNSON
600 West Broadway, Suite 1540
San Diego, CA 92101
Telephone:
619/230-0063
619/255-1856
(fax)
frankj@johnsonfistel.com
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JOHNSON FISTEL, LLP
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W. SCOTT HOLLEMAN
99 Madison Avenue, 5th
Floor
New York, NY 10016
Telephone:
212/802-1486
212/602-1592
(fax)
sholleman@johnsonfistel.com
Attorneys for Plaintiff
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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GARY W. HOLDEN, Individually and On
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Behalf of All Others Similarly Situated,
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Case No.
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Plaintiff,
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CLASS ACTION COMPLAINT
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v.
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TRIANGLE CAPITAL CORPORATION, E.
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JURY TRIAL DEMANDED
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ASHTON POOLE, STEVEN C. LILLY and
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GARLAND S. TUCKER, III,
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Defendants.
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CLASS ACTION COMPLAINT
Plaintiff Gary W. Holden (Plaintiff), individually and on behalf of all other persons similarly situated, by his undersigned
attorneys, for his complaint against Defendants, alleges the following based upon personal knowledge as to himself and his own acts, and information and belief as to all other matters, based upon,
inter alia
, the investigation conducted by
and through his attorneys, which included, among other things, a review of the Defendants public documents, conference calls and announcements made by Defendants, United States Securities and Exchange Commission (SEC) filings, wire
and press releases published by and regarding Triangle Capital Corporation (Triangle Capital or the Company), analysts reports and advisories about the Company, and information readily obtainable on the Internet.
Plaintiff believes that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
1
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all persons other than Defendants who purchased or otherwise
acquired Triangle Capitals securities between May 7, 2014 and November 1, 2017, both dates inclusive (the Class Period), seeking to recover damages caused by Defendants violations of the federal securities laws
and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule
10b-5
promulgated thereunder, against the Company and certain of its top
officials.
2. Triangle Capital Corporation operates as a private equity firm. The Company invests in manufacturing, distribution,
transportation, energy, communications, health services, restaurants, and other business sectors.
3. Founded in 2002, the Company is based
in Raleigh, North Carolina, and its stock trades on the New York Stock Exchange (NYSE) under the ticker symbol TCAP.
4. Throughout the Class Period, Defendants made materially false and misleading statements regarding the Companys business,
operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) as early as 2013, Triangles investment professionals had internally recommended moving away from
mezzanine loan deals due to changes in the market that no longer made these investments attractive risk-reward opportunities; (ii) the Companys former CEO, Defendant Tucker, had ignored the advice of Triangles investment
professionals to chase higher short-term yields by causing Triangle to invest in mezzanine debt despite the poor quality of the loans and their increased risk of defaults and nonaccruals; (iii) the Companys entire vintage of 2014 and 2015
investments were at substantial risk of
non-accrual
as a result of the poor quality of the investments and deficient underwriting practices in place at the time of the investments; (iv) more than 13% of
Triangles investment portfolio at cost was at risk of
non-accrual
and, thus, the fair value of the Companys asset portfolio was artificially inflated; (v) Triangle had materially
2
understated the number of loans performing below expectations and/or in
non-accrual
and had delayed writing down impaired investments; (vi) Triangle failed to implement effective underwriting policies and practices to ensure it received appropriate risk-adjusted returns on
its investments; and (vii) as a result of the foregoing, Triangle Capitals shares traded at artificially inflated prices during the Class Period, and class members suffered significant losses and damages.
5. On November 1, 2017, Triangle issued a press release announcing its financial results for the quarter ended September 30, 2017.
The release revealed that the fair value of the Companys investment portfolio had declined to $1.09 billion, a decline of nearly 7% from the prior quarter. In addition, the Company revealed that it had suffered $8.9 million in net
realized losses and $65.8 million in net unrealized depreciation to its portfolio during the quarter. The Company also disclosed that it had only earned $0.36 per share in net investment income and that it was slashing its quarterly dividend to
$0.30 per share, a decline of 33% from the prior quarter. Most shocking, Triangle revealed that it had placed seven new investments on
non-accrual
status during the quarter, effectively acknowledging that
those assets were unlikely to generate future returns, and that the amount of investments on
non-accrual
had
ballooned to
13.4% and 4.7%
of the Companys total portfolio at
cost and at fair value, respectively.
6. On these disclosures, Triangle Capitals share price fell $2.57, or 20.98%, to close at
$9.68 on November 2, 2017.
7. As a result of Defendants wrongful acts and omissions, and the precipitous decline in the market
value of the Companys securities, Plaintiff and other Class members have suffered significant losses and damages.
3
JURISDICTION AND VENUE
8. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the Exchange Act (15 U.S.C. §§78j(b) and
78t(a)) and Rule
10b-5
promulgated thereunder by the SEC (17 C.F.R.
§240.10b-5).
9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§ 1331 and Section 27 of the
Exchange Act.
10. Venue is proper in this Judicial District pursuant to §27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C.
§1391(b) as many of the acts charged herein, including the dissemination of materially false and misleading information, occurred in substantial part in this Judicial District. In addition, the common stock of Triangle trades on the NYSE,
located within this Judicial District.
11. In connection with the acts, conduct and other wrongs alleged in this Complaint, Defendants,
directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mail, interstate telephone communications and the facilities of the national securities exchange.
PARTIES
12.
Plaintiff, as set forth in the attached Certification, acquired Triangle Capital securities at artificially inflated prices during the Class Period and was damaged upon the revelation of the alleged corrective disclosures.
13. Defendant Triangle Capital is headquartered in North Carolina, with principal executive offices located at 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina 27612. Triangle Capitals stocks trade on the NYSE under the ticker symbol TCAP.
4
14. Defendant E. Ashton Poole (Poole) has served at all relevant times as the
Companys President, Chief Executive Officer (CEO) and Chairman of the Board of Directors (the Board). Poole assumed the position of CEO in February 2016, prior to which he was the Chief Operating Officer
(COO) of the Company.
15. Defendant Steven C. Lilly (Lilly)
co-founded
and
has served at all relevant times as the Companys Chief Financial Officer (CFO) Secretary and Director.
16. Defendant
Garland S. Tucker, III (Tucker) is a director and
co-founder
of Triangle. He was Chairman of the Board until May 2017 and CEO of the Company until February 2016.
17. The Defendants referenced above in ¶¶
14-16
are sometimes referred to herein as the
Individual Defendants.
18. The Individual Defendants possessed the power and authority to control the contents of Triangle
Capitals SEC filings, press releases, and other market communications. The Individual Defendants were provided with copies of the Companys SEC filings and press releases alleged herein to be misleading prior to or shortly after their
issuance and had the ability and opportunity to prevent their issuance or to cause them to be corrected. Because of their positions with the Company, and their access to material information available to them but not to the public, the Individual
Defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading. The Individual Defendants are
liable for the false statements and omissions pleaded herein.
5
SUBSTANTIVE ALLEGATIONS
Background
19.
Triangle Capital Corporation operates as a private equity firm. The Company invests in manufacturing, distribution, transportation, energy, communications, health services, restaurants, and other business sectors. The Company focuses on lending to
private companies with annual revenues between $10.0 million and $250.0 million.
20. Triangle is regulated as a business
development company, or BDC, under the Investment Companies Act of 1940. The purported investment objective of Triangle is to generate attractive returns by generating current income debt investments and capital appreciation
equity-related investments. In turn, Triangle pays out this investment income in dividends to its shareholders. The rate and amount of these dividend payments is critical to the markets valuation of Triangle.
21. The quality and robustness of Triangles underwriting and valuation policies, practices and procedures are also critical to investors
evaluating the Company. Triangle provides loans in small- to
mid-size
private companies for which limited public information is available. Investors rely on Triangle to be able to appropriately value and price
the risks associated with investing in these companies and to identify profitable investment opportunities so that it can receive a return on its investments and avoid writing down assets or placing loans on
non-accrual.
22. During the Class Period, Triangle used an aggressive form of fair value
accounting by which it recognized loan income before the income was actually paid to the Company. Triangle did this in a variety of ways, including by recognizing
payment-in-kind
(PIK) interest provisions as income even though such income may never actually be paid to
6
the Company. PIK is contractually deferred interest added to principal and generally due at the end of the loan term. When a borrower cannot pay normal interest terms, PIK provisions can be used
in a refinanced loan to nominally increase loan income while at the same time rendering that income more speculative as payment is deferred until the end of the loan term. This allowed Triangle to defer the recognition of losses and loan write-downs
until later in the life of the loan and to conceal poor loan performance.
Materially False and Misleading Statements Issued During
the Class Period
23. The Class Period begins on May 7, 2014, when Triangle issued a press release announcing its
financial results for the quarter ended March 31, 2014. The release stated that the fair value of the Companys investment portfolio was $690 million at quarter end, with $438.6 million in total net assets. The release also
stated that Triangle had made $77.5 million in new investments during the quarter. The release quoted Defendant Tucker, Triangles
then-CEO,
as stating: The first quarter represented the
beginning of the more active year we are expecting 2014 to be, with new portfolio investments totaling more than $77 million. . . . Our activity during the quarter supports our optimism for the year, as we believe the lower middle market is
poised to provide attractive investment opportunities during the balance of 2014. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants Tucker and Lilly certified
were accurate, not misleading and free from fraud.
24. The next day, Triangle held an earnings call with analysts and investors to discuss
its financial results. On the call, Defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, Defendant
Poole, who was then Triangles COO, stated that the Company was
focusing on quality over quantity
in terms of [its] investment pace per
7
quarter, and that the Company was being particularly discriminate in how [it is] reviewing
opportunities and choosing to invest and turning away lower quality investment opportunities. Defendant Poole also stated that Triangle was passing on lower-quality B deals so that it could focus on the A deals. Later,
he continued in pertinent part as follows:
So I think we are thinking about it as a great way to
continue to prudently invest the
liquidity
that we have had over the last year and the firepower that
weve reserved for a more fruitful investing environment, which we believe is clearly unfolding
or has unfolded as weve seen in Q1 and hopefully
will continue to do so in Q2, Q3, and Q4.
25. On the conference call, Defendant Lilly, who served as Triangles CFO, likewise
described the Companys investing philosophy: [T]he primary keys to a successful long-term track record in the [BDC] industry are to
maintain on[es] credit focus, remain conservative and consistently apply an underwriting
formula
that produces solid results.
26. On August 6, 2014, Triangle issued a press release announcing its financial
results for the quarter ended June 30, 2014. The release stated that the fair value of the Companys investment portfolio was $736.3 million at quarter end, with $445.8 million in total net assets. The release also stated that
Triangle had made $87.3 million in new investments during the quarter. The release quoted Defendant Tucker as stating: The second quarter of 2014 was robust on all fronts. We made $87.3 million of investments . . . . Again, it
is an exciting time for Triangle and it gives me great pleasure to be able to share such good news with our investors. That same day, the Company filed its quarterly results on Form
10-Q,
which
Defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
27. The next day, Triangle held an earnings call
with analysts and investors to discuss its financial results. On the call, Defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies
and procedures. For example, Defendant Lilly stated:
8
During 2014, as the market has naturally shifted back to a healthy amount of
M&A activity, we have found that our patience has been rewarded and
we have taken advantage of what we perceive to be high-quality investment opportunities at attractive price points
. As a result, as we enter the second half of the
year, we are becoming increasingly convinced that 2014 could end up being one of TCAPs most active years in terms of new investments.
28. On November 5, 2014, Triangle issued a press release announcing its financial results for the quarter ended September 30, 2014.
The release stated that the fair value of the Companys investment portfolio was $841.6 million at quarter end, with $547.4 million in total net assets. The release also stated that Triangle had made $180.8 million in new
investments during the quarter. The release quoted Defendant Tucker as stating: The third quarter of 2014 was extremely active for Triangle. We originated a record $181 million of new investments . . . That same day, the
Company filed its quarterly results on Form
10-Q,
which Defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
29. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, Defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, Defendant Tucker stated: [W]e are pleased that the
origination portion of our business is operating so well. Our investment pipeline has been robust all year, and
we remain very pleased with the quality of the new investments
weve made. Defendant Poole provided additional
commentary on the purported quality of Triangles new investments during the quarter, stating in pertinent part as follows:
I think, obviously the question is always what is the quality of that flow, and which investments do we feel are the
right ones to pursue on behalf of our shareholders? And I can assure you that we spend quite a bit of time on that question.
And so when we think about pipeline, and when you guys think about pipeline, I think it really has to be measured in two ways.
One is just externally, how much or what is the amount of flow of opportunities coming in the door, and then the subset of that flow that we choose to pursue. And on both accounts,
I can safely say that our pipeline is healthy.
9
30. On March 2, 2015, Triangle issued a press release announcing its financial results for
the fourth quarter and year ended December 31, 2014. The release stated that the fair value of the Companys investment portfolio was $887.2 million at year end, with $530.8 million in total net assets. In addition, the release
stated that Triangle had only 5.8% and 3.0% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made
$129 million in new investments during the fourth quarter. The release quoted Defendant Tucker as stating: The fourth quarter represented a strong end to the year for Triangle Capital. We remained active in the investing market
[and] we generated a record amount of investment income . . . . As we move into 2015 we are pleased with the quality of our investment portfolio, the strength of our balance sheet, and the opportunities we see across the lower middle
market. That same day, the Company filed its quarterly and annual results on Form
10-K,
which Defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
31. Also on March 2, 2015, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call,
Defendants stressed the purported quality of the Companys investments and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, Defendant Tucker stated: As we begin 2015, we are reminded
that the most successful BDCs are those that continually exercise corporate discipline in areas such as investment prudence and those that resisted certain temptations, such as growing their investment portfolios in an irrational
way.
10
32. Similarly, Defendant Poole stressed that Triangle had been selective in its investments and
focused on quality over quantity in securing sound investments, stating in pertinent part as follows:
In the lower middle
market, we are finding that financial sponsors are entering 2015 with a very optimistic view. For the first time in a number of years, there is significant inventory available in terms of both first-time sellers of private companies coupled with a
healthy backlog of
sponsor-to-sponsor
trades, which in recent years have become a meaningful component of the market.
Balancing against this robust level of inventory is
our internal view that not every company meets our underwriting
standards
. And so while our deal teams are very busy analyzing a healthy number of opportunities, you can expect that
we will continue to remain focused on quality versus quantity
in terms of new investment activity.
33. On May 6, 2015, Triangle issued a press release announcing its financial results for the quarter ended March 31, 2015. The
release stated that the fair value of the Companys investment portfolio was $877.4 million at quarter end, with $519.6 million in total net assets. In addition, the release stated that Triangle had only 6.1% and 2.7% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $98.2 million in new investments during the
quarter. The release quoted Defendant Tucker as stating: We are pleased that we were able to follow a strong fourth quarter of 2014 with another strong quarter to begin 2015. . . . We remain confident in both the overall quality of our
investment portfolio and the investment opportunities in the lower middle market for the remainder of 2015. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants
Tucker and Lilly certified were accurate, not misleading and free from fraud.
34. The next day, Triangle held an earnings call with
analysts and investors to discuss its financial results. On the call, Defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment
11
policies and procedures. For example, Defendant Poole stated that he and management feel very good
about Triangles new investments during the quarter, and that the Company was very focused on maximizing yields on behalf of [its] investors. Similarly, Defendant Lilly stated:
[Q]uality over quantity
, . . .
thats what we try to focus on, and always have, and I think that will be
the biggest guide post
as we move forward.
35. On August 5, 2015, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2015. The
release stated that the fair value of the Companys investment portfolio was $884.9 million at quarter end, with $514.8 million in total net assets. In addition, the release stated that Triangle had only 3.1% and 1.6% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $65.1 million in new investments during the
quarter. The release quoted Defendant Tucker as stating: The second quarter was another active quarter for Triangle. . . . Our expanded balance sheet enables Triangle to focus on new portfolio opportunities during the remainder of
2015. That same day, the Company filed its results on Form
10-Q,
which Defendants Tucker and Lilly certified were accurate, not misleading and free from fraud.
36. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, Defendants stressed
the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, Defendant Tucker stated: [W]e decided to pass on a greater
percentage of transactions during the first half of the year rather than stretch our credit metrics in a manner that would not be consistent with our historical underwriting standards. Defendant Lilly continued on this same theme in response
to an analyst question, stating: I think thematically what you continue to hear from us is, were not trying to grow the portfolio purely for growth. Say, were trying to find the best risk adjusted returns we can.
12
37. On November 4, 2015, Triangle issued a press release announcing its financial results
for the quarter ended September 30, 2015. The release stated that the fair value of the Companys investment portfolio was $968.1 million at quarter end, with $515.7 million in total net assets. In addition, the release stated
that Triangle had only 2.0% and 0.7% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made
$189.2 million in new investments during the quarter. The release quoted Defendant Tucker as stating: The third quarter was an extremely active quarter for Triangle. The recent volatility in the broader credit markets has accrued to
our benefit as
we were able to originate a record level of new investments in high quality companies
during the quarter. Needless to say, we are pleased that we exercised patience during the first half of the year and maintained
sufficient liquidity to take advantage of what we perceive to be an opportune time in the investing market. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants
Tucker and Lilly certified were accurate, not misleading and free from fraud.
38. The next day, Triangle held an earnings call with
analysts and investors to discuss its financial results. On the call, Defendants stressed the purported quality of the Companys investments during the quarter and the robustness of Triangles underwriting and risk assessment policies and
procedures. For example, Defendant Tucker stated: As we move to the end of 2015, and begin to look forward to 2016, I believe Triangle has successfully navigated this rough patch
with the same measure of discipline and focus
that
our team employed to navigate the success-filled days and quarters before. On the call Defendant Lilly also made the point that the Company was selectively choosing investments that promised the best risk-adjusted returns pursuant to a robust
underwriting process, stating in pertinent part as follows:
13
In terms of how
we feel about the current originations, the de facto answer
is, we feel very good about them
or we would not have made the investments to begin with. We look at a lot of opportunities. As you have heard Ashton say on these calls before, it is not unusual for us to have $2 billion of total flow
in a single quarter that we are filtering through in terms of the total consideration.
So,
there is a lot of
filtering that goes on
. We tend to close somewhere between 3% and 5% of what we look at. We are very much aligned with that this quarter and I think feel really good about those.
39. Defendant Poole also represented that Triangle had expanded its investments into attractive opportunities by focusing on credit discipline,
stating in pertinent part as follows:
[W]e are pleased to have been cautious during the first half of the year and that we held onto our
liquidity to be able to put us in a position to achieve what we believe is a very opportunistic time in the market. . . .
By focusing on our key sponsor relationships, we believe we can better target long-term returns for shareholders by
operating within our credit discipline
and maintaining our focus.
40. In February 2016, Triangle announced that Defendant
Poole would be taking over as CEO of the Company, while Defendant Tucker would continue to serve as Chairman of the Board.
41. On
February 24, 2016, Triangle issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2015. The release stated that the fair value of the Companys investment portfolio was
$977.3 million at year end, with $508.4 million in total net assets. In addition, the release stated that Triangle had only 2.0% and 0.7% in
non-accrual
assets as a percentage of the Companys
total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $101.5 million in new investments during the fourth quarter. The release quoted Defendant Poole as stating: We are pleased to
14
report a strong finish to 2015 . . . . As we move into 2016, we believe our investing platform is well positioned to continue capitalizing on the attractive opportunities the lower middle market
provides. That same day, the Company filed its quarterly and annual results on Form
10-K,
which Defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
42. The next day, Triangle held an earnings call with analysts and investors to discuss its financial results. On the call, Defendants stressed
the purported quality of the Companys investments and the robustness of Triangles underwriting and risk assessment policies and procedures. For example, Defendant Poole stated: 2015 for Triangle was marked by several notable items.
First,
we excelled in originating high-quality, new investments in the lower middle market
, as 2015 represented our second-most active investing year on record, with over $450 million in total capital deployed.
43. On May 4, 2016, Triangle issued a press release announcing its financial results for the quarter ended March 31, 2016. The
release stated that the fair value of the Companys investment portfolio was $940 million at quarter end, with $504.3 million in total net assets. In addition, the release stated that Triangle had only 3.6% and 0.9% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $11.8 million in new investments during the
quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
44. On August 3, 2016, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2016. The
release stated that the fair value of the Companys investment portfolio was $930.8 million at quarter end, with $498.3 million in total net assets. In addition, the release stated that Triangle had only 5.6% and 2.2% in
non-accrual
assets as a
15
percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $63.6 million in new investments during the quarter.
That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
45. In October 2016, Triangle announced that Brent P.W. Burgess was resigning his positions as the Companys Chief Investment Officer and
a member of the Board.
46. On November 2, 2016, Triangle issued a press release announcing its financial results for the quarter
ended September 30, 2016. The release stated that the fair value of the Companys investment portfolio was $947.7 million at quarter end, with $619.4 million in total net assets. In addition, the release stated that Triangle had
only 3.9% and 2.1% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $88.4 million in new
investments during the quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
47. On February 22, 2017, Triangle issued a press release announcing its financial results for the fourth quarter and year ended
December 31, 2016. The release stated that the fair value of the Companys investment portfolio was $1.04 billion at year end, with $611.2 million in total net assets. In addition, the release stated that Triangle had only 3.5%
and 1.5% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $155.6 million in new
investments during the fourth quarter. That same day, the Company filed its quarterly and annual results on Form
10-K,
which Defendants Poole and Lilly certified were accurate, not misleading and free from
fraud.
16
48. On May 3, 2017, Triangle issued a press release announcing its financial results for the
quarter ended March 31, 2017. The release stated that the fair value of the Companys investment portfolio was $1.13 billion at quarter end, with $729.2 million in total net assets. In addition, the release stated that Triangle
had only 4.2% and 2.2% in
non-accrual
assets as a percentage of the Companys total portfolio at cost and at fair value, respectively. The release also stated that Triangle had made $161.5 million in
new investments during the quarter. That same day, the Company filed its quarterly results on Form
10-Q,
which Defendants Poole and Lilly certified were accurate, not misleading and free from fraud.
49. The statements referenced in ¶¶
23-39,
41-44,
46-48
were materially false and misleading because Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Companys business, operational and
compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) as early as 2013, Triangles investment professionals had internally recommended moving away from mezzanine loan
deals due to changes in the market that no longer made these investments attractive risk-reward opportunities; (ii) the Companys former CEO, Defendant Tucker, had ignored the advice of Triangles investment professionals to chase
higher short-term yields by causing Triangle to invest in mezzanine debt despite the poor quality of the loans and their increased risk of defaults and nonaccruals; (iii) the Companys entire vintage of 2014 and 2015 investments were at
substantial risk of
non-accrual
as a result of the poor quality of the investments and deficient underwriting practices in place at the time of the investments; (iv) more than 13% of Triangles
investment portfolio at cost was at risk of
non-accrual
and, thus, the fair value of the Companys asset portfolio was artificially inflated; (v) Triangle had materially understated the number of loans
performing below expectations and/or in
17
non-accrual
and had delayed writing down impaired investments; (vi) Triangle failed to implement effective underwriting policies and practices to
ensure it received appropriate risk-adjusted returns on its investments; and (vii) as a result of the foregoing, Triangle Capitals shares traded at artificially inflated prices during the Class Period, and class members suffered
significant losses and damages.
The Truth Begins to Emerge
50. On August 2, 2017, Triangle issued a press release announcing its financial results for the quarter ended June 30, 2017. The
release stated that the fair value of the Companys investment portfolio was $1.17 billion at quarter end, with $707.9 million in total net assets. In addition, the release revealed significant deterioration in the credit quality of
the Companys portfolio. The release revealed that Triangle had moved one investment to
full-non-accrual
status from PIK nonaccrual and that the amount of full
non-accrual
assets in the Companys portfolio had increased to 5.4% and 2.5% as a percentage of the Companys total portfolio at cost and at fair value, respectively. Moreover, the Company disclosed that
it had moved two investments to PIK nonaccrual status, increasing the amount of PIK
non-accruals
as a percentage of the Companys total portfolio. The Company also revealed only $0.41 in net investment
income per share, which was below the Companys $0.45 per share dividend, and $26.2 million in net unrealized depreciation on its investment portfolio.
51. On this news, the price of Triangle stock declined nearly 15%, or $2.56 per share, from $17.19 per share on August 2, 2017, to close
at $14.63 per share by August 4, 2017, on abnormally high trading volume.
18
52. However, the price of Triangle common stock remained artificially inflated, as Defendants
continued to conceal the true risks to Triangles business and prospects as a result of aired credit quality of its portfolio, defective underwriting practices and the facts and circumstances surrounding Triangles 2014 and 2015
investments. For example, on the quarterly earnings call, Defendant Lilly stated that it was likely that only two of the five portfolio companies carried below 80% of cost on Triangles portfolio would go on
non-accrual
in the next two to four quarters, and only one that carried above 80% of cost might it might go on nonaccrual during that same time frame.
53. Similarly, in response to an analyst question about how Triangle would minimize loss or maximize recoveries from its legacy
investments, Defendant Poole stated that Triangle had recently improved its credit monitoring capabilities and reassured investors that Triangle had enhanced its abilities to identify trouble areas in its portfolio, stating in pertinent part as
follows:
As far as [the] portfolio management side of the equation, I think you all know that Jeff Dombcik is our Chief Credit Officer and
is head of our portfolio management process. We brought on an additional resource to support Jeff in that effort I will say that Jeffs done a terrific job of going back through and examining all of our prior tools and screens and processes for
getting ahead in forecasting potential trouble spots in the portfolio by industry and by company,
and we now have a much, much greater visibility or predictability going forward of where we see potential issues.
Jeff is [sic] also
applied what I think is just incredible focus and attention on the problem situations that we do have, and has brought great leadership and trying to work through the situations and work either constructively with sponsors in terms of getting to
solutions that benefit our shareholders or in cases where we need to exercise more influence directly on our own accord to generate the best outcome for tick up in our shareholders. So collectively, the 2 sides of the coin are much improved in my
view and resulting [in] a better performance for the company and for our shareholders.
54. Then, on November 1, 2017, Triangle issued
a press release announcing its financial results for the quarter ended September 30, 2017. The release revealed that the fair value of the Companys investment portfolio had declined to $1.09 billion, a decline of nearly 7% from the
prior quarter. In addition, the Company revealed that it had suffered $8.9 million in net realized losses and $65.8 million in net unrealized depreciation to its portfolio during the quarter. The Company also disclosed that it had only
earned $0.36 per share in net investment
19
income and that it was slashing its quarterly dividend to $0.30 per share, a decline of 33% from the prior quarter. Most shocking, Triangle revealed that it had placed seven new investments on
non-accrual
status during the quarter, effectively acknowledging that those assets were unlikely to generate future returns, and that the amount of investments on
non-accrual
had
ballooned to
13.4% and 4.7%
of the Companys total portfolio at cost and at fair value, respectively.
55. During the earnings call to discuss the results, Defendants further surprised investors by revealing that the entire vintage of the
Companys investments in 2014 and 2015 had suffered from poor underwriting and investment practices and that the Company had ignored the advice of its own internal investment advisors at the time the investments were made, who had recommended
against the strategy ultimately undertaken by the Company. Defendant Poole explained what had occurred behind the scenes, which dramatically differed from the previous representations he and the other Defendants had made to investors, stating in
pertinent part as follows:
During the period from early 2013 through the end of 2015, as large amounts of capital poured into the direct
lending space, investment structures and pricing in the lower middle market and broader middle market changed rapidly. Perhaps most notably by unitranche depth becoming the security of choice by financial sponsors. In addition, leverage levels began
moving up in a meaningful way. The combination of these factors resulted in a rapid decline in pricing as interest rate compression began affecting the leverage lending world.
Our investment professionals were aware of these changes and
recommended to our former CEO to begin moving away from mezzanine structures
and into lower yielding but more secure second lien unitranche and senior structures. Their reasoning was simple. Companies in our target market were gaining access
to additional forms of capital on terms more favorable than what they could have achieved in the past and as a result the traditional risk-reward equation for mezzanine debt did not appear as attractive as it previously had. Unfortunately the
strategic decision was made not to move off balance sheet in a meaningful way and TCAP continued to lead with a yield focused mezzanine strategy. In the process of doing
so we added incremental exposure to a number of riskier credits, many of
which are now underperforming
. . . . However, the adherence to a majority focused mezzanine investment strategy when during a period of massive change in the market,
other investment strategies were available which provided a better
risk-reward
20
equation was the wrong strategic call.
We are continuing to act decisively and aggressively with the goal of moving through our underperforming investments as quickly as possible
but at this point we acknowledge that as a firm we are being held back primarily by our 2014 and 2015 investment vintages.
56. During the
call, analysts reacted with shock and frustration. An analyst even asked Defendant Lilly to explain why the Company had not clawed back the executive compensation of Defendant Tucker and Triangles Chief Investment Officer at the time. Other
analysts suggested that the Company needed to completely revamp its underwriting and valuation practices to improve the accuracy of its marks and suggested that an independent third party needed to review Triangles portfolio, implying that the
valuations given by management could not be trusted.
57. On these disclosures, Triangle Capitals share price fell $2.57, or 20.98%,
to close at $9.68 on November 2, 2017.
58. As a result of Defendants wrongful acts and omissions, and the precipitous decline
in the market value of the Companys securities, Plaintiff and other Class members have suffered significant losses and damages.
PLAINTIFFS CLASS ACTION ALLEGATIONS
59. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class,
consisting of all those who purchased or otherwise acquired Triangle Capital securities during the Class Period (the Class); and were damaged upon the revelation of the alleged corrective disclosures. Excluded from the
Class are Defendants herein, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a
controlling interest.
21
60. The members of the Class are so numerous that joinder of all members is impracticable.
Throughout the Class Period, Triangle Capital securities were actively traded on the NYSE. While the exact number of Class members is unknown to Plaintiff at this time and can be ascertained only through appropriate discovery, Plaintiff
believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Triangle Capital or its transfer agent and may be notified of the pendency
of this action by mail, using the form of notice similar to that customarily used in securities class actions.
61. Plaintiffs claims
are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants wrongful conduct in violation of federal law that is complained of herein.
62. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and
experienced in class and securities litigation. Plaintiff has no interests antagonistic to or in conflict with those of the Class.
63.
Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:
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whether the federal securities laws were violated by Defendants acts as alleged herein;
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whether statements made by Defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Triangle Capital;
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whether the Individual Defendants caused Triangle Capital to issue false and misleading financial statements during the Class Period;
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whether Defendants acted knowingly or recklessly in issuing false and misleading financial statements;
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22
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whether the prices of Triangle Capital securities during the Class Period were artificially inflated because of the Defendants conduct complained of herein; and
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whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.
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64. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all
members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the
wrongs done to them. There will be no difficulty in the management of this action as a class action.
65. Plaintiff will rely, in part,
upon the presumption of reliance established by the
fraud-on-the-market
doctrine in that:
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Defendants made public misrepresentations or failed to disclose material facts during the Class Period;
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the omissions and misrepresentations were material;
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Triangle Capital securities are traded in an efficient market;
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the Companys shares were liquid and traded with moderate to heavy volume during the Class Period;
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the Company traded on the NYSE and was covered by multiple analysts;
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the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Companys securities; and
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Plaintiff and members of the Class purchased, acquired and/or sold Triangle Capital securities between the time the Defendants failed to disclose or misrepresented material facts and the time the true facts were
disclosed, without knowledge of the omitted or misrepresented facts.
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23
66. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
67. Alternatively, Plaintiff and the members of the Class are entitled to
the presumption of reliance established by the Supreme Court in
Affiliated Ute Citizens of the State of Utah v. United States,
406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material information in their Class Period
statements in violation of a duty to disclose such information, as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule
10b-5
Promulgated Thereunder Against All Defendants)
68. Plaintiff repeats and realleges each and every allegation contained above as if fully set forth herein.
69. This Count is asserted against Defendants and is based upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule
10b-5
promulgated thereunder by the SEC.
70. During the Class Period, Defendants engaged in a plan,
scheme, conspiracy and course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon Plaintiff and the other members of the Class; made
various untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to, and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged herein;
(ii) artificially inflate and maintain the market price of Triangle Capital securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire Triangle Capital securities and options at artificially
inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, Defendants, and each of them, took the actions set forth herein.
24
71. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the Defendants
participated directly or indirectly in the preparation and/or issuance of the quarterly and annual reports, SEC filings, press releases and other statements and documents described above, including statements made to securities analysts and the
media that were designed to influence the market for Triangle Capital securities. Such reports, filings, releases and statements were materially false and misleading in that they failed to disclose material adverse information and misrepresented the
truth about Triangle Capitals finances and business prospects.
72. By virtue of their positions at Triangle Capital , Defendants had
actual knowledge of the materially false and misleading statements and material omissions alleged herein and intended thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, Defendants acted with reckless disregard
for the truth in that they failed or refused to ascertain and disclose such facts as would reveal the materially false and misleading nature of the statements made, although such facts were readily available to Defendants. Said acts and omissions of
Defendants were committed willfully or with reckless disregard for the truth. In addition, each Defendant knew or recklessly disregarded that material facts were being misrepresented or omitted as described above.
73. Information showing that Defendants acted knowingly or with reckless disregard for the truth is peculiarly within Defendants
knowledge and control. As the senior managers and/or directors of Triangle Capital, the Individual Defendants had knowledge of the details of Triangle Capitals internal affairs.
25
74. The Individual Defendants are liable both directly and indirectly for the wrongs complained
of herein. Because of their positions of control and authority, the Individual Defendants were able to and did, directly or indirectly, control the content of the statements of Triangle Capital. As officers and/or directors of a publicly-held
company, the Individual Defendants had a duty to disseminate timely, accurate, and truthful information with respect to Triangle Capitals businesses, operations, future financial condition and future prospects. As a result of the dissemination
of the aforementioned false and misleading reports, releases and public statements, the market price of Triangle Capital securities was artificially inflated throughout the Class Period. In ignorance of the adverse facts concerning Triangle
Capitals business and financial condition which were concealed by Defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Triangle Capital securities at artificially inflated prices and relied upon the
price of the securities, the integrity of the market for the securities and/or upon statements disseminated by Defendants, and were damaged thereby.
75. During the Class Period, Triangle Capital securities were traded on an active and efficient market. Plaintiff and the other members of
the Class, relying on the materially false and misleading statements described herein, which the Defendants made, issued or caused to be disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares of Triangle
Capital securities at prices artificially inflated by Defendants wrongful conduct. Had Plaintiff and the other members of the Class known the truth, they would not have purchased or otherwise acquired said securities, or would not have
purchased or otherwise acquired them at the inflated prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class, the true value of Triangle Capital securities was substantially lower than the prices paid by
Plaintiff and the other members of the Class. The market price of Triangle Capital securities declined sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
26
76. By reason of the conduct alleged herein, Defendants knowingly or recklessly, directly or
indirectly, have violated Section 10(b) of the Exchange Act and Rule
10b-5
promulgated thereunder.
77. As a direct and proximate result of Defendants wrongful conduct, Plaintiff and the other members of the Class suffered damages
in connection with their respective purchases, acquisitions and sales of the Companys securities during the Class Period, upon the disclosure that the Company had been disseminating misrepresented financial statements to the investing
public.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
78. Plaintiff repeats and realleges each and every allegation contained in the foregoing paragraphs as if fully set forth herein.
79. During the Class Period, the Individual Defendants participated in the operation and management of Triangle Capital, and conducted and
participated, directly and indirectly, in the conduct of Triangle Capitals business affairs. Because of their senior positions, they knew the adverse
non-public
information about Triangle Capitals
misstatement of income and expenses and false financial statements.
80. As officers and/or directors of a publicly owned company, the
Individual Defendants had a duty to disseminate accurate and truthful information with respect to Triangle Capitals financial condition and results of operations, and to correct promptly any public statements issued by Triangle Capital which
had become materially false or misleading.
27
81. Because of their positions of control and authority as senior officers, the Individual
Defendants were able to, and did, control the contents of the various reports, press releases and public filings which Triangle Capital disseminated in the marketplace during the Class Period concerning Triangle Capitals results of
operations. Throughout the Class Period, the Individual Defendants exercised their power and authority to cause Triangle Capital to engage in the wrongful acts complained of herein. The Individual Defendants therefore, were controlling
persons of Triangle Capital within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct alleged which artificially inflated the market price of Triangle Capital securities.
82. Each of the Individual Defendants, therefore, acted as a controlling person of Triangle Capital. By reason of their senior management
positions and/or being directors of Triangle Capital, each of the Individual Defendants had the power to direct the actions of, and exercised the same to cause, Triangle Capital to engage in the unlawful acts and conduct complained of herein. Each
of the Individual Defendants exercised control over the general operations of Triangle Capital and possessed the power to control the specific activities which comprise the primary violations about which Plaintiff and the other members of the
Class complain.
83. By reason of the above conduct, the Individual Defendants are liable pursuant to Section 20(a) of the
Exchange Act for the violations committed by Triangle Capital.
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PRAYER FOR RELIEF
WHEREFORE,
Plaintiff demands judgment against Defendants as follows:
A. Determining that the instant action may be maintained as a class action under Rule 23 of the Federal Rules of Civil Procedure, and
certifying Plaintiff as the Class representative;
B. Requiring Defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C. Awarding Plaintiff and the other members of the Class prejudgment and
post-judgment interest, as well as their reasonable attorneys fees, expert fees and other costs; and
D. Awarding such other and
further relief as this Court may deem just and proper.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: November 28, 2017
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Respectfully submitted,
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POMERANTZ LLP
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/s/ Jeremy A. Lieberman
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Jeremy A. Lieberman
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J. Alexander Hood II
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Hui M. Chang
600 Third Avenue, 20th
Floor
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New York, New York 10016
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Telephone: (212)
661-1100
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Facsimile: (212)
661-8665
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Email: jalieberman@pomlaw.com ahood@pomlaw.com
hchang@pomlaw.com
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POMERANTZ LLP
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Patrick V. Dahlstrom
10 South La
Salle Street, Suite 3505
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29
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Chicago, Illinois 60603
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Telephone: (312)
377-1181
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Facsimile: ( 312)
377-1184
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Email: pdahlstrom@pomlaw.com
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Attorneys for Plaintiff
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30
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