The Wall Street Journal reported on Sunday that Third Avenue CEO David Barse had been let go and locked out of his office, and Monday the company confirmed that Barse was out and the fund management firm was being run by the five-person management committee.

The news of the firing of the CEO at Third Avenue comes at the same time the firm announced it was suspending redemptions at its now-closed high yield bond fund.

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More on CEO David Barse leaving Third Avenue

Of note, emails to Barse were returned with a message of “undeliverable” as of Saturday evening. An exec from another bond fund who spoke to Barse on Friday afternoon said he did not share any details about his departure from Third Avenue.

He had been the top man at Third Avenue since 1991, and is also a major shareholder. Just the day before he was fired, Barse announced on Thursday that the firm was closing its six-year-old, $789 million Third Avenue Focused Credit Fund, and that investors would not get their money back for some time as the fund worked to liquidate its assets.

Global credit markets sank on the news Friday, as analysts and investors grew concerned about mutual funds with major holdings of corporate junk bonds. In a related development, the biggest U.S. junk-bond ETF hit its lowest level since early 2009 on Friday.

Third Avenue used aggressive legal strategy to halt redemptions

Financial sector analysts point out that Third Avenue is trying a questionable legal strategy to in effect halt redemptions without obtaining an order of authorization from the Securities and Exchange Commission, according to knowledgeable sources who spoke to the WSJ.

Apparently, the firm continued paying out all redemption requests through December 8th, just before it shuttered the fund, and transferred all of the fund assets into a liquidating trust, shares of which are to be distributed to former shareholders in the closed bond fund.

Third Avenue’s lawyers claim that the distribution of the trust shares represents a full redemption, the sources explained, so the fund would not have actually stopped making distributions from a legal perspective.  However, shareholders in the trust possess no redemption rights and will be repaid only if and when Third Avenue sells assets in the trust.

In a controversial move, the fund manager only informed the SEC of their legal strategy a few hours before making a public announcement and moved ahead with their plan even without the regulator’s approval.