The Securities and Exchange Commission filed civil fraud charges on Tuesday against the operators of the Reserve Primary Fund, the money-market fund that rattled markets last year by “breaking the buck.”
In September, the fund company announced that its net assets had dipped below $1 a share, an extremely rare occurrence known as “breaking the buck.”
Money market funds are widely regarded as one of the safest investment products, and the Reserve Fund’s announcement added fuel to an already panicked investment environment.
The SEC alleged in a complaint filed in federal court in New York that the Reserve Fund’s managers withheld important information related to the fund’s Lehman Brothers holding that might have helped investors.
Named in the complaint are Reserve Management Co. Inc. Chairman Bruce Bent Sr., who founded the firm and is credited with inventing the money market fund, and his son, Vice Chairman and President Bruce Bent II.
The SEC is alleging that the managers played down their Lehmann investments in an effort to stave off redemptions.
The fund, which held $785 million in Lehman securities, broke the buck a day after the venerable investment firm filed for bankruptcy on Sept. 15.
“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.
“We’re taking the lead in this matter because we want to get money back into the pockets of investors as quickly as possible,” said Schapiro.
Attorneys for Reserve Management Co., its officials, Resrv Partners and the Reserve Primary Fund weren’t immediately available for comment.
