A civil court cleared former Reserve Primary Fund executives Bruce Bent Sr. and Bruce Bent II of fraud charges Monday, ending a three-year case in which the Securities and Exchange Commission accused them of misleading investors about the fund's exposure to Lehman Brothers.
While the jury of seven in New York's Southern District unanimously cleared the Bents of fraud, they handed down a guilty verdict against their firm, Reserve Management Co., and Resrv Partners.
The Bents said through a spokesman that they "acknowledged the jury's verdict" but disagreed with some of the findings, and may pursue an appeal.
"What transpired over those unprecedented 36 hours back in September 2008, following the collapse of Lehman was something we and the entire world financial market, had never experienced," said the Bents. "We are proud that, through our efforts, fund investors ultimately received back more than 99 cents on every dollar invested in September 2008."
The day before Lehman's bankruptcy, the fund held $785 million in Lehman debt securities. The SEC accused the Bents and Reserve Management Co. of falsely reassuring investors that their fund was intact, and grossly understating the amount of redemptions they were receiving.
"Today's verdict of liability sends the message that fund executives cannot withhold from investors and trustees key information about their fund's vulnerability," said Robert Khuzami, the SEC's director of enforcement. "This case, along with our actions against more than 100 other entities and individuals, demonstrates our continuing commitment to pursuing cases arising out of the financial crisis."
Investors seek out money market funds because they are designed to maintain a stable price of $1 per share. But the Reserve Primary Fund "broke the buck" on Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, meaning its net asset value fell below $1 a share.
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