5.5.2009 The SEC filed fraud charges against several entities and individuals who operate the Reserve Primary Fund for failing to provide key material facts to investors and trustees about the fund’s vulnerability as Lehman Brothers Holdings, Inc., sought bankruptcy protection. The SEC is asking the U.S. District Court for the Southern District of New York to enter an order compelling a pro rata distribution of remaining fund assets, which would release a significant amount of money that is currently being withheld from investors pending the outcome of numerous lawsuits against the fund, the trustees and other officers and directors of the Reserve entities. 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 Reserve Management Company, Inc. (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.
Click http://www.sec.gov/news/press/2009/2009-104.htm to access the SEC’s press release.