Lawsuit Charges Reserve Management Of Misleading Reserve Yield Plus Investors
The final months of 2008 have morphed into a hotbed of legal problems for the Reserve Management Corporation, which is now facing a new federal class-action lawsuit concerning the Yield Plus Fund. Filed in New York on Nov. 25, the lawsuit accuses Reserve Management of misleading thousands of investors in the fund by taking on risky investments, rather than preserving capital as initially advertised.
As reported Nov. 28 in USA Today, the risky investments in the Yield Plus Fund included Lehman Brothers debt. When Lehman filed for bankruptcy protection on Sept. 16, the Yield Plus Fund quickly broke the buck, and redemptions in the $1.1 billion fund were subsequently frozen.
The lawsuit also accuses TD Ameritrade of intentionally misleading clients in the Yield Plus Fund by characterizing the fund as a money market fund. In reality, the Yield Plus Fund is a diversified mutual fund that made high-risk investments as opposed to the conservative nature of a money market investment.
The Yield Plus Fund lawsuit is just one of a number of lawsuits on Reserve Management’s plate. To date, at least 16 other lawsuits have been filed against the company over another fund that it manages, the Reserve Primary Fund. The $64 billion Primary Fund, which is the oldest money-market fund in the United States, became the first fund in 14 years to break the buck after Lehman Brothers filed bankruptcy in September. At the time, Reserve Management told investors that redemptions only would take up to seven days.
Seven days ultimately turned into months. However, unlike the Yield Plus Fund, the Reserve Primary Fund is covered by the government’s bailout out plan. As for investors in the frozen Reserve Yield Plus Fund, their “coverage” is non-existent; instead, they are looking at double-digit losses.
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December 4th, 2008 at 2:34 pm
Reserve Primary Fund is NOT covered by the government’s bailout plan.