MINNEAPOLIS (CN) – The Reserve Fund and its agents tipped off major institutional investors about Lehman Bros.’ imminent bankruptcy on Sept. 15, causing them to withdraw $41 billion of the fund’s $64 billion at $1 per share, Ameriprise Financial Services and Securities America claim in Federal Court.
The plaintiffs say they were not privy to tip and did not discover that the money market mutual fund had “broken the buck,” where its net asset value fell below $1 per share, until Sept. 16, when its value fell to $0.97 per share.
Ameriprise had invested about $1.2 billion in the fund on behalf of more than 150,000 clients. It had also sunk approximately $100 million of its own money into the trust, which had “material exposure” to Lehman’s securities, according to the lawsuit. Similarly, Securities America invested about $2 billion on behalf of more than 175,000 clients, along with $28 million of its own capital.
Ameriprise employees say the fund’s managers admitted that the trust “had previously tipped the institutional investor’s about the Fund’s likelihood of breaking the buck, and seemed surprised that Ameriprise had not also been tipped at the same time (it was not).”
The plaintiffs say they asked to redeem their money from the primary fund when the value had fallen to $0.95 a share, “and any redemptions at this point may well bring substantially less.”
They demand a temporary restraining order and injunction barring the defendants from allowing investors to withdraw their money, and an order requiring the defendants to liquidate the fund “in a fair and equitable manner that maximizes returns for each investor, including plaintiffs, and treats each investor equally.”
Plaintiffs are represented by Will Stute and Michael Krauss of Faegre & Benson.