Court consolidates class-action lawsuits against Easterly Fund

Investors suing over the sudden June selloff of Easterly RocMuni High Income Municipal Bond Fund will see their complaints consolidated into one class-action securities fraud lawsuit, a judge ruled Thursday.

Investors Troyt Victorson and Richard Fulford both sued the James Alpha Funds Trust, which does business as the Easterly Funds Trust, in July on behalf of any investors — which both plaintiffs estimated could be in the thousands — who over roughly three years bought shares in the high-yield mutual fund. The lawsuits were sparked by the fund’s sudden selloff in June in which large chunks of its $232 million portfolio were sold at basement bargain prices.

After a hearing last week, Judge Denise Cote of the Southern District of New York named Fulford as the lead plaintiff. Kaplan Fox & Kilsheimer LLP will act as lead counsel. An amended complaint must be filed by Dec. 5 and the fund has until Jan. 30, 2026 to respond or file a motion to dismiss.

Fulford’s complaint, which names several defendants including the fund’s portfolio managers, said investors were told that the fund maintained a 15% limitation on illiquid investments.

In fact, Fulford alleged, a “substantial percentage” of the fund’s NAV was concentrated in illiquid assets, and the “safeguards that purportedly limited the fund’s investment in illiquid assets were ineffective.”

The defendants “materially overvalued the carrying value of certain of the fund’s assets and overstated the fund’s net asset value, and as a result, fund investors were subject to material undisclosed risks,” the complaint said.

The fund’s net assets, which totaled $232 million as of March 31, tumbled to $25.1 million by June 24 after the selloff. As of Sept. 30, Morningstar reported net assets at $13.52 million.

Market participants said at the time that the sell-off illustrates valuation risks in the high-yield muni market, where limited liquidity can challenge accurate bond pricing.

Borrower Gladieux Metals Recycling LLC, was listed as the fund’s top position at the end of the first quarter. Some of the bonds sold for as little as four cents during the selloff. Since then, the borrower entered bankruptcy and bondholders who snapped up the cheap paper have found themselves pitted against majority bondholders in the case.

Easterly did not respond to a request for comment.