S.E.C. Accuses Money Fund Managers of Fraud


By REUTERS
Published: May 5, 2009

Federal securities regulators accused the managers of the Reserve
Primary Fund of fraud on Tuesday, saying they withheld “key material
facts” from investors when the big money-market fund fell below its
normal dollar-a-share value after the collapse of Lehman Brothers in
September.

The Securities and Exchange Commission filed a civil complaint against
the Reserve Management Company, its chairman, Bruce Bent Sr., and its
vice chairman and president, Bruce Bent II. The S.E.C. said the company
and its executives failed to disclose the Reserve Primary Fund’s
vulnerability after Lehman filed for bankruptcy protection.

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

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

The Primary Fund sent shock waves through the investment management
world when it halted redemptions and set off a run on money-market
funds, which had been considered safe in times of market turmoil.

The S.E.C. said in its complaint that the defendants engaged in a
"systematic campaign to deceive the investing public" into believing the
fund was safe and secure despite its substantial Lehman holdings.

“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,"
the S.E.C.’s chairwoman, Mary L. Schapiro, said in a statement.

The complaint called Bruce Bent Sr. "the public face of the Reserve, and
a longtime advocate of the safety and stability of money market funds."

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"...a civil complaint..."

Why no criminal charges?