Report: SEC Could Bring Enforcement Action Against Reserve, Bents

[WSJ Law Blog]

Problems are mounting for the Reserve Fund company, whose founder invented the money market fund in the early 1970s.

In September, a week following the collapse of Lehman Bros., we told you about a suit filed against Reserve in Minneapolis federal court.



Financial planning firm Ameriprise claimed that, when a number of Reserve’s larger investors pulled their money from the Reserve Fund’s Primary Fund — prior to reports that the funds had “broken the buck,” or were no longer worth a dollar-a-share — it was because they’d been tipped off by the Reserve Fund. (The Lehman collapse forced the short-term Lehman debt that the Reserve fund held to decline to zero.) Another suit was filed against the Reserve Fund in Manhattan federal court, alleging, among other things, that the way it handled its 11th-hour redemptions violated the procedures laid out in its SEC prospectuses.



Now comes a report that the SEC may be joining the Reserve party. The WSJ reports that the SEC is gearing up to potentially bring an enforcement action against Management Co., according to a Reserve release. The release says the SEC’s staff recommended that the agency bring the action against Reserve, and also against Reserve Management president Bruce Bent (pictured) and sons Arthur Bent III and Bruce Bent II, who are senior execs at the firm. The WSJ couldn’t reach the SEC for comment.

In its release Tuesday, Reserve disclosed only that the SEC is alleging violations of “certain provisions of the federal securities laws” and that the three Bents “expect to defend vigorously against the allegations.” A Reserve spokeswoman declined to comment to WSJ.

Harvey Wolkoff, a Ropes & Gray lawyer who’s brining the Ameriprise suit, told WSJ that it’s unusual that Reserve in its release doesn’t say what charges the SEC has leveled against the fund. But “there’s been a lack of transparency from the Reserve all along,” he says.