An investor in Easterly RocMuni High Income Municipal Bond Fund filed a class-action securities fraud lawsuit Tuesday, accusing the firm and its portfolio managers of causing the fund's "shocking destruction of wealth" in June by inflating the fund's bond prices and overinvesting in illiquid assets.
"The stunning collapse in the value of fund shares in such a short time span is virtually unprecedented in connection with municipal bond mutual funds," said the
"Such a shocking destruction of wealth was possible because the fund's [public filings and documents] materially misrepresented the nature of the fund, the value of fund investments, and the policies and procedures employed by the fund."
The lawsuit was filed in the U.S. District Court for the Southern District of New York on behalf of investors who purchased shares of the fund between May 5, 2023 and June 12, 2025.
Easterly declined to comment on the lawsuit. The plaintiff's firm, Robbins Geller Rudman & Dowd LLP, could not be reached for comment.
The suit names 19 defendants, including James Alpha Funds Trust, which does business as Easterly; portfolio managers Troy Willis and Charlie Pulire; investment advisors and board trustees.
The fund's net asset value started the month of June at $6.36 and had dropped to $3.09 by June 24. Its net assets totaled $25.1 million by that date, down from $232 million as of March 31.
As of Thursday, the fund's NAV was $2.94 and its assets totaled $15.3 million.
In a response to emailed questions sent before the lawsuit was filed, Easterly said it's "tracking the [assets under management] level closely, and if necessary we will provide an update."
Victorson seeks compensatory damages and rescission under the Securities Act of 1933 and asked for a jury trial. The class could include thousands of investors, the complaint said.
The sell-off illustrates valuation risks in the high-yield muni market, where limited liquidity can challenge accurate pricing, market participants said. For bonds that are not traded frequently, it can be difficult for pricing services to peg their underlying value, particularly if the information is hidden from public view, as is increasingly the case with small project finance deals.
The investor lawsuit describes the fund's statements that it maintains "rigorous internal pricing methodologies and third-party verifications" as "materially false and misleading"
The fund's assets are "generally valued at their market price on the valuation date and are based on valuations provided by independent pricing services consistent with the trust's valuation procedures," the complaint said, quoting from the fund's public documents. "When market prices are not readily available, a security or other asset is valued at its fair value as determined under fair value pricing procedures approved by the board."
In response to emails before the lawsuit, Easterly declined to name the pricing service it uses.
"The muni market is a market that requires patience and research," said Mark Paris, CIO and head of municipals at Invesco, which runs three large high-yield muni mutual funds.
When an influx of high-yield paper enters the market, "not everyone has time to do research and absorb what's going on in the marketplace ... When this happens, there may be big price swings," he said.
Pricing can also be tough in distressed situations where credit information is not readily available. The Easterly complaint alleges the fund's documents "included several assets at materially inflated valuations as part of the Fund's total NAV, including municipal bonds issued for Legacy Cares, Proton International Alabama, LLC, Purecycle Technologies, and Gladieux Metals Recycling LLC."
Those credits are in various stages of default.
Lack of frequent trades means a pricing service needs to look elsewhere for its valuation. The concentration of credits in the hands of a few bondholders means they may be able to support the price until an actual trade is printed, said market participants.
"These smaller nonrated deals that are minimally held can be a challenge for independent pricing services to obtain the secondary market disclosure information they need to properly value those bonds," said JR Rieger, publisher of the Rieger Report and longtime former head of global fixed-income evaluations at S&P Evaluations.
"They mark the securities to the best of their ability, but without that information, they really can't do it; they need access to secondary market information just like a bondholder has. This is a challenge to the bond municipal market," Rieger said.
Ultimately, it's the fund's responsibility to value the securities accurately as part of its daily NAV mark, Rieger said. "At the end of the day, the board of directors has the responsibility to do it right, and if they don't feel the pricing services are doing it correctly, they're obligated to."
For larger high-yield issues that trade frequently, like Tobacco Buckeye bonds and Puerto Rico, the pricing is typically accurate, said a pricing services veteran who asked to remain anonymous.
But for smaller non-rated to single-B credits, it's a "best estimate" as the bonds trade infrequently, the source said.
"They're not many posts to go off of and it's difficult to use comps because of things like the state it's in, couponing, calls, etc.," the veteran said.
Because of all the "bespoke nuances" of lower-rated high-yield deals, it's a "best guesstimate" on pricing. "The pricing services do the best they can with what they have to compare to, but in the end, those prices are never written in stone," they said.
Invesco is confident in its pricing abilities, Paris said. The firm boasts a large analyst staff that looks through sectors and searches for anomalies.
"Are there going to be surprises here and there, when either there's a large seller or an immediate credit issue happens, then yes, but we're very diligent and consider ourselves experts," he said.
