|
Reserve Primary Fund Operators Charged With Fraud
|
|
(May 6, 2009 - Wednesday) - http://online.wsj.com/article/BT-CO-20090505-720562.html
By Sarah N. Lynch
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Securities and Exchange Commission on Tuesday brought civil charges against the operators of the Reserve Primary Fund, the money-market fund that made headlines in September when its net asset value fell below $1 a share - also known as "breaking the buck."
The civil lawsuit, filed in a U.S. District Court in Manhattan, alleges that Reserve Management Co. Inc. Chairman Bruce Bent Sr., 71, Vice Chairman and President Bruce Bent II, 42, and Resrv Partners Inc. failed to provide key material information to investors, the fund's board of trustees and rating agencies after Lehman Brothers filed for bankruptcy protection on Sept. 15.
The fund held $785 million in Lehman securities. After Lehman Brothers filed for bankruptcy, however, fund investors were unable to redeem their money. The fund broke the buck the following day.
"The fund's managers turned a blind eye to investors and the reality of the situation at hand before the fund broke the buck last September," said SEC Chairman Mary Schapiro in a statement.
In addition to charging the operators of the fund with fraud, the SEC's suit also attempts to expedite the distribution of the fund's remaining assets to investors.
The Primary Fund's independent trustees said in a statement that they would continue to cooperate with the SEC to expedite distribution of the remaining assets to shareholders "and to ensure that all decisions are made in the shareholders' best interests."
Later Tuesday, Chairman Bruce Bent also issued a statement on the case, saying the Lehman Brothers bankruptcy was an unforeseen event.
"Since we created the money fund in 1970 we have operated and grown our business by putting our shareholders' interests first," he said. "The Lehman Brothers bankruptcy filing created an unforeseeable and out- of-control condition for many parties and the results were serious. Our management worked extremely hard throughout the chaotic and fast-moving events of September 15-16 and we remain confident that we acted in the best interest of our shareholders. We are hopeful that this matter can be resolved quickly."
The SEC's case against the Reserve Primary Fund comes just as the agency is gearing up to propose new rules aimed at preventing future similar incidents in which funds "break the buck."
Schapiro reiterated Monday in an address at the Mutual Fund Directors Forum that the SEC plans to propose in June changes to improve maturity and credit quality and ensure cash is readily available in money-market mutual funds. In addition, the SEC will also consider whether or not a floating-rate net asset value might be more appropriate for money-market funds.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com
(Daisy Maxey contributed to this story.)
|
