A man who fundamentally changed the nature of investing in this country has been accused of misleading investors last year.
Bruce R. Bent Sr., 71, the co-founder of the first money market mutual fund, is the object of a civil lawsuit by the Securities and Exchange Commission that was filed Tuesday in federal court in Manhattan.
His son, Bruce Bent II, 43, the co-CEO of the fund known as the Reserve Primary Fund, is also cited in the complaint.
Another Bent company, Reserve Management Company Inc., the fund’s manager, and Reserve Partners Inc., a broker-dealer run by Reserve Management, are also named as defendants.
The suit charges the Bents with the “knowing dissemination of false information” about the impact of the bankruptcy of Lehman Brothers Holdings Inc. last September upon the Reserve Fund.
According to the complaint, the Reserve Fund held $785 million in Lehman debt securities, securities that had become worthless.
The SEC alleges that the Bents falsely assured shareholders and the fund’s trustees that, despite the Lehman loses, Reserve Management had enough capital or available credit to keep the fund’s net asset value above $1 a share.
This proved not to be the case, and eventually the Bents acknowledged that the fund had “broken the buck” and the net asset value was below $1 a share.
This prompted a run on the fund and a call for tougher regulation of money market funds in general.
The Reserve Fund, which had been valued at $62.5 billion, is now in liquidation, with about 90 percent of its assets returned to investors.
Reserve Management has held back about $3.5 billion pending the outcome of about 29 civil lawsuits. The SEC is asking that this money be released and distributed to investors in the fund.
In a statement, the elder Bent said, “We remain confident that we acted in the best interest of our shareholders. We are hopeful that this matter can be resolved quickly.”
Bent was a money manager at the Teachers Insurance and Annuity Association in the late 1960s.
One day, he and his boss, Henry B. R. Brown, began chatting about strategies that would allow small investors to get higher rates on return than those offered by savings accounts.
“I looked up at Brown and said, ‘Why not a mutual fund?’” Bent later told Fortune magazine. “He said he didn’t know anything about mutual funds. I said, ‘I don’t know anything about mutual funds either, but I think it would work.’”
The pair went out on their own, starting the Reserve Fund in 1972. By the beginning of January 1973, they were managing $1 million.
A story then ran that month in The New York Times, prompting interest in the fund. By the end of the year Brown and Bent were managing $100 million and mutual funds were proliferating.
Brown, who died last August, left company management in 1985, but retained a financial interest in the business until Bent bought him out in 1999.
In 2001, Bent ran unsuccessfully as a Republican for Nassau (NY) County executive, promising that he would serve at $1 a year and that he would improve efficiency in the government.
This emphasis on fiscal restraint reflected Bent’s original investment principles at the Reserve Fund, which was seen as low-risk.
But according to The Wall Street Journal, the fund’s strategies changed in 2006 and it began to invest in higher-risk financial products, including the commercial paper from Lehman Brothers that led to the fund’s demise.
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2 Comments
#1. doster 05.12.2009
What a ridiculous article, not to mention the pointless chart. How about how Bush, Cox, Benanke, Paulson and everyone else who who constantly came out to reassure the public in the days before the: Bear Stearns collapse, Lehman Bros collapse, Countrywide collapse, AIG collapse, auto industry collapse, credit market collapse etc., etc. Is there any accountability for the people who hold public office? What were they all doing in DC for the past 10 years?
#2. #2 doster 06.04.2009
Not a ridiculous article. These two clowns need to be thrown in jail and put right next to MADOFF. #1 doster you sound like a RESERVE EMPLOYEE or better yet an OWNER. Your scam is over - GOOD RIDDANCE.
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