Legal News

In Suit Against Fund, Ameriprise Asks: Who Were the Tippees?

By Dan Slater

When a number of investors pulled their money from the Reserve Fund’s Primary Fund — prior to reports last Tuesday that the funds had “broken the buck,” or were no longer worth a dollar-a-share — were they reacting to market panic, or had they been tipped off by the Reserve Fund?

That’s the question at the center of a suit filed in Minneapolis by Ameriprise. The suit, reports the New York Times, claims the Reserve Fund tipped some big customers about its crisis in advance so that they could get their cash out before its losses became public. According to the complaint, two senior Reserve Fund executives acknowledged during a conference call last Thursday with Ameriprise that big investors had received an early warning.

Ameriprise, notes the Times, certainly qualified as a big investor, having invested $128 million of its own money and more than $3.2 billion of its customers’ to the Reserve Fund.

U.S. District Judge Paul A. Magnuson imposed a temporary restraining order preventing the Reserve Fund from permitting any further withdrawals from several of its largest funds.

This morning, the lead attorney for Ameriprise, Ropes & Gray’s Harvey J. Wolkoff, will ask the judge to speed up the pace of discovery in the case “so we can figure out who the tippees were.” he said. The Reserve Fund Management Company did not respond to messages to its office in New York City. Its lawyer in Minneapolis, Barbara P. Berens of Kelly & Berens, told the NYT declined to comment.

The lawsuit is one of several facing the Reserve Fund company, whose founder invented the money market fund in the early 1970s. Another suit was filed against the Reserve Fund on Friday in federal court in Manhattan, alleging that the way the Reserve Fund handled its 11th-hour redemptions last week violated the redemption procedures laid out in it SEC prospectuses. The suit also alleges that the Reserve Fund more than doubled its stake in commercial paper issued by Lehman last spring, after the investment bank “was widely considered to be the next victim of the ongoing banking crisis.”

Full post as published by Law Blog - WSJ.com on September 23, 2008 (boomark / email).