Wednesday, October 14, 2015

Adviser Alleges Fraud in Connection with Questionable Board Activities

By Amy Leisinger, J.D.

NexPoint Advisors, L.P. has filed a shareholder complaint against TICC Capital Corp. and certain of its directors and officers seeking to remedy a number of state and federal violations. According to the complaint, TICC rejected NexPoint’s proposal to become the company’s new investment adviser without serious inquiry, issued materially false or misleading proxy statements, and scheduled a special meeting of the board to elect directors while contending that it would not count any vote in favor of NexPoint’s slate of directors. NexPoint seeks injunctions requiring the defendants to count votes cast for nominees put forward by NexPoint and to issue additional proxy materials retracting misleading statements and making accurate disclosures (NexPoint Advisors, L.P. v. TICC Capital Corp., October 7, 2015).

Allegations. According to the complaint, the defendants told NexPoint that, at its upcoming meeting, TICC would only recognize votes cast for TICC’s own nominees and would seek stockholder approval of a new advisory agreement without consideration of NexPoint’s competing advisory proposals. In their efforts to prevent proper voting, the complaint alleges, the defendants have violated the federal securities laws by making false and misleading disclosures in proxy statements about the election and the choices available. Specifically, the complaint alleges that the defendants falsely stated that, in connection with the vote on the advisory contract, Maryland law prevents the nomination of any director other than TICC’s chosen nominees. In addition, the complaint alleges, the defendants failed to disclose material facts concerning the existence of a valid comparison between the proposed agreement to be adopted and NexPoint’s competing proposal, including potential cost savings and the magnitude of the defendants’ financial benefit from deciding against NexPoint’s proposal.

By this conduct, the complaint alleges, the defendants have violated Exchange Act Section 14(a) and Rule 14a-9 prohibiting the issuance of false or misleading statements of fact in any proxy statement. The complaint also asserts claims for breach of contract and breach of the common law duty of candor. NexPoint asks the court to require the defendants to give TICC shareholder non-misleading information and the ability to vote for any directors they believe will best represent their interests.

The case is No. 3:15-cv-01465-CSH.