About 1 am on September 16, 2008. That's when Bruce Bent Sr. and Bruce Bent II decided that they had no choice but to pull the plug on their Reserve Primary money market fund.

To read the full, continuing saga of the collapse of the Reserve Primary Fund and the ensuing legal battle, see MFWire's living timeline.

Bent II revealed that this afternoon in the SEC's fraud case against him, his father, Reserve, and Reserve's affiliated distributor. This was Bent II's fourth day in a row testifying in downtown New York City at the U.S. District Court for the Southern District Court of New York, before U.S. District Judge Paul Gardephe. State Street's role in the fund's collapse also came up today in Bent II's testimony.

Bent II completed his account of the "harrowing" days of September 14, 15 and 16, 2008. He talked about his 1am, September 16, 2008 call with his father, who was just starting a new day in Italy.

"We concluded that a credit support agreement wasn't going to save the day anyway," Bent II said, reiterating that Primary's $785 million in Lehman Brothers paper dwarfed the $50 million in cash Reserve had on hand, more than half of which was invested in Primary.

"We were tapped out," Bent II added. "We had customers that were going nuts. The phone was ringing off the hook. I didn't want to prolong that once it was clear to me that we weren't going to be able to save the fund."

"There was no point in messing around anymore," Bent II said. "I wanted to just put this thing out of its misery."

Yet despite Bent Sr. and Bent II's 1 am conclusion that pulling the plug was the only option, Primary's board of trustees wasn't ready to give up just yet. Bent II testified that, in two board meetings via phone just nine hours and eleven hours later, the trustees did not give him the go-ahead to start shutting the fund down.

"They were not ready to close the Primary Fund," Bent II said. "The trustees wanted to wait to hear back from the New York Fed."

It took until a 3:45pm board meeting, again via phone, and the conveyance of the New York Fed's lack support, for the trustees to agree to shut Primary down and send out the word.

Also this afternoon, Bent II placed some of the blame for the chaos of those days onto the shoulders of Primary's custodian, State Street.

"Our custody bank is not necessarily sending our wires [for shareholder redemptions] as soon as they get instructions from us," Bent II told Primary's trustees in a 9:30am, September 15, 2008 board conference call, a recording of which was played in court this afternoon.

"The situation got worse," Bent II said today in court. "Wires did not get caught up. They were getting further behind."

That backup, Bent II said, came as a big surprise, as Reserve had switched custodians, choosing State Street to replace Chase specifically because the former promised to handle overdraft situations in crises like this one.

"There shouldn't have been an issue," Bent II said. "I understood that State had unlimited obligation to cover overdrafts to the extent that we had securities held in custody with them … Besides the $785 million of Lehman paper, everything else [in Primary] was pristine paper!"

Bent II is slated to finish his testimony tomorrow. 

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