The Securities and Exchange Commission (SEC) alleged that Chairman Bruce Bent Sr. and vice chairman and president Bruce Bent II did not provide investors with “key material facts” as the $60-billion fund “broke the buck” when the value of its assets fell to $0.97 per invested dollar last fall.
The SEC alleged, in its complaint filed in federal court in Manhattan, that Reserve Management and the executives misrepresented when the company would provide the credit needed to protect the net asset value of the fund when it never intended to do that.The agency also said the company “significantly understated” the investor requests to withdraw from the fund and failed to provide the fund’s trustees with accurate information on the value of Lehman securities.
According to an Associated Press news report, Reserve has said it now expects investors could receive an estimated $0.91 cents for every dollar they put in to the fund.
In its legal papers, the SEC said it is seeking unspecified civil fines and restitution from Reserve Management and the two executives as well as to expedite the distribution of the Primary Fund’s remaining assets to investors. After the latest $2.3 billion distribution announced April 17, about $46 billion, or about 90% of fund assets, had been returned to investors, the company said last month.
According to the Associated Press account, the Primary Fund, established in 1970, was the first U.S. money fund. Its September 2008 collapse was one in a cascading series of troubling events in the financial meltdown.
After Lehman Brothers filed for bankruptcy protection on September 15, Reserve Management board declared its $785 million investment in the investment bank’s debt worthless. That triggered a rush of orders from institutional clients to pull money out, gutting the fund’s value as its managers were forced to sell assets amid sharply declining markets.
On September 16, according to the news account, Reserve Management announced the Primary Fund had “broken the buck.” (see Reserve Primary Fund Promises $20B in Shareholder Repayments ) The Treasury Department stepped in with a temporary program to guarantee money-market funds, but the Primary Fund didn’t qualify and had to liquidate (see Treasury Officials Give Money Market Intervention Effort Five More Months ).
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