SEC OKs Plan for Reserve Primary Fund

(CN) - The SEC has posted information on its Web site to help investors get their money back after the Reserve Primary Fund "broke the buck" last September in the wake of Lehman Bros.' collapse. The SEC also has filed fraud charges against Bruce Bent Sr. and Bruce Bent II, the father and son who run Reserve Management Co., whose $120 billion in managed assets include the 22 "Reserve Funds."

The Primary Fund is a money market fund that provided shareholders with $1 per share net asset value. On Sept. 15, 2008 - the day Lehman Bros. filed for bankruptcy protection - the Fund held $785 million in Lehman debt securities, according to the complaint.

Reserve Management Co. Inc. (RMCI), "a privately held corporation owned and controlled by Bruce Bent Sr. and his family," were immediately besieged by shareholders seeking to redeem. By 10 a.m. on Sept. 15, State Street Bank, the fund's custodian bank, had suspended the fund's overdraft privileges because of massive redemptions.

To prevent a run on the fund, shareholders, the fund's Board of Trustees, and rating agencies were told that RMCI had agreed to provide sufficient capital to maintain net asset value at $1. The fund falsely assured shareholders that it was honoring redemptions and that a credit support agreement was in the works, according to the SEC complaint.

The next day, RMCI revealed that the fund's shares had declined to below $0.995, the lowest point at which they could permissibly be rounded to $1.

Since Sept. 15, investors have filed at least 29 lawsuits, the complaint states. In response to the flood of litigation, the fund has adopted a distribution plan that withholds at least $3.5 billion from shareholders indefinitely until all litigation has been resolved. Last week U.S. District Judge Paul G. Gardephe in New York issued an order scheduling consideration of the SEC's proposed plan of investor fund distribution.

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