Reserve Management To Face SEC Charges Over Primary Fund Failure
New York-based Reserve Management Company, along with several of its senior executives, has learned it will face charges by the Securities and Exchange Commission (SEC) for violation of federal securities laws. Charges also are expected to be brought against Reserve President Bruce Bent, Senior Vice President Bruce Bent II and Arthur Bent III, chief operating officer and treasurer.
The charges against Reserve Management come on the heels of at least 19 investor lawsuits after the company’s Reserve Primary Fund broke the buck on Sept. 16 when commercial paper from Lehman Brothers Holdings, Inc. became essentially worthless amid the bank’s bankruptcy filing. The fund was the first money-market fund in 14 years to break the buck.
The Primary Fund, whose assets exceeded $65 billion in September, including $785 million in bonds issued by Lehman Brothers, is now in the process of liquidating.
Meanwhile, shareholders of the Reserve Primary Fund who did not get out before the company froze redemptions in September are taking legal action. According to lawsuits already filed, investors contend the fund “deviated from its stated investment objective by sacrificing preservation of capital and liquidity in pursuit of higher yields. This strategy was exemplified by the fund’s disastrous and unreasonable concentration of $785 million face value in commercial paper issued by Lehman.”
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