Corporate & Securities Law

SNSFE Investigates Reserve Primary Fund As SEC Files Fraud Action Against The Fund And Its Officers For Providing Misleading Information

By James Eccleston

The Securities and Exchange Commission has charged operators of the Reserve Primary Fund with fraud.

The Reserve Primary Fund "broke the buck" on Sept. 16, 2008, when its net asset value fell below $1 per share, meaning investors in the money market fund would lose money.

The SEC alleges that the Reserve Management Company (RMCI), its Chairman Bruce Bent Sr., its Vice Chairman and President Bruce Bent II, and Resrv Partners, Inc., failed to provide key material information to investors, the fund's board of trustees, and rating agencies as Lehman Brothers filed for bankruptcy protection on September 15.

The fund, which held $785 million in Lehman-issued securities, became illiquid on September 15 when the fund was unable to meet investor requests for redemptions.

According to the SEC's complaint, the defendants misrepresented that RMCI would provide the credit support necessary to protect the $1 net asset value of the Primary Fund when, in fact, RMCI had no such intention.

The SEC alleges that RMCI significantly understated the volume of redemption requests received by the fund and failed to provide the trustees with accurate information concerning the value of Lehman securities.  Because of these misrepresentations and omissions, the fund was unable to strike a meaningful hourly net asset value as required by the fund's prospectus.

Attorneys at SNSFE continue to investigate the Reserve Primary Fund.  Those with information should feel free to contact attorneys at SNSFE.

Source: SEC Press Release 2009-104

Full post as published by FinancialCounsel on May 06, 2009 (boomark / email).