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Rating:The Death of the Reserve Primary Fund: a Timeline Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, October 18, 2012

The Death of the Reserve Primary Fund: a Timeline

Reported by Neil Anderson, Managing Editor

On September 16, 2008, Bruce Bent Sr.'s $62.5-billion Reserve Primary Fund [profile] made history by breaking the buck. Since then, the fallen money market mutual fund's parent has transformed, and the collapse has spawned a host of lawsuits as well as a fight over the future of money fund regulations.

This story is a living timeline detailing the collapse of the Reserve Primary Fund and the ongoing legal battles that rose up in its wake. Check back here for the latest updates in this saga.


November 12, 2012 — The jury clears the Reserve and the Bents of the fraud charges, while finding them liable for one claim of negligence.

November 7, 2012 — Both sides make their closing arguments, and the jury begins deliberating.

October 26, 2012 — The evidence phase of the trial ends, with closing arguments slated for Monday if the weather cooperates.

October 25, 2012 — The last defense witness, ex-Reserve general counsel Kate Crowley, finishes her testimony, and the SEC begins its rebuttal case with Rose DiMartino and Joel Goldberg, outside lawyers who worked with Reserve.

October 24, 2012 — Ex-Reserve general counsel Kate Crowley takes the stand, testifying that she doesn't think the Bents lied to her on those fateful days in September 2008. Jurors also heard in-person testimony from University of Minnesota Law professor Richard Painter and a read-aloud deposition of former SEC investment management division chief Buddy Donohue.

October 23, 2012 — The SEC attorneys finish presenting their side of the case, with testimony from an SEC accountant and from ex-Reserve CIO Patrick Ledford. Ledford discussed his communications with the ratings agencies on those fateful September days in 2008.

October 22, 2012 — Former Reserve global sales chief John Drahzal takes the stand.

October 19, 2012 — After five days, Bent II finally finishes his testimony, and former Reserve operations chief, Bent II's brother-in-law David Gareis, takes the stand.

October 18, 2012 — Bent II confirms the timing of he and his father's conclusion that Primary could not be saved. Bent II also testified about State Street's involvement in the demise of the fund.
—Also on October 18, two institutional investors in Primary testified that Reserve sales execs told them that Reserve would support the fund's $1 NAV "unequivocally."

October 17, 2012 — Bent II reveals that in January 2008 Reserve considered five bids valuing the company at between $90 million and $625 million.

October 16, 2012 — Bent II's testimony continues, as the prosecution and defense again sparred over an e-mail in which Bent II told his sales chief that the Reserve would protect the Primary Fund's $1 NAV "to whatever degree is required."

October 15, 2012 — Bent Sr.' testimony ends, and his son, Bruce Bent II, takes the stand, describing what happened inside Reserve on the day Lehman filed for bankruptcy. Bent II began laying out a timeline for those fateful days in September 2008.

October 12, 2012 — Bent Sr. testifies that 24 or more buyers, including Federated and Bank of New York Mellon, sniffed around Reserve in the first nine months of 2008, before the Primary Fund collapsed.

October 11, 2012 — Bent Sr. defends himself in court.

October 9, 2012 — Attorneys for the SEC and the Bents present their opening arguments before a jury in Manhattan in the U.S. District Court for the Southern District of New York.

October 3, 2012 — In a turn of events, U.S. District Judge Paul Gardephe rules in the Bents' favor in part of the SEC lawsuit, allowing evidence showing that the Bents based their confidence in Lehman’s finances in part on the SEC's oversight of the investment bank under a voluntary regulatory program.

September 11, 2012 — Judge Gardephe in the SEC lawsuit rules to disallow Richard Painter from testifying at the upcoming trial, scheduled for October 1. According to Judge Gardephe, the University of Minnesota law professor's testimony, which would have detailed the panic of the financial crisis and the government's actions related to Lehman Brothers Holdings, would have confused the jury as to the focus of the trial. In a ruling filed in the U.S. District Court for the Southern District of New York, the judge emphasizes that the trial "is not about whether the government should have more closely supervised Lehman, or about whether it should have rescued Lehman."

August 17, 2012 — 75-year-old Reserve chairman Bruce Bent, Sr., and his son and vice chairman Bruce Bent II blame the U.S. government for their Reserve Primary Fund breaking the buck. The two tell a judge that the jury for their upcoming trial should be allowed to hear about the government's refusal to bail out Lehman Brothers and causing the run on the fund.

August 13, 2012 — A Los Angeles Times column supporting SEC Chairman Mary Schapiro's proposed money fund reforms mentions the upcoming October 1 federal fraud trial between the SEC and Bruce Bent Sr., Bruce Bent II, and Reserve Management Company and their distributor, Resrv Partners.

March 15, 2012 — At a convention in Indianapolis, SEC chairman Mary Schapiro reveals that Reserve's collapse still haunts her.


November 11, 2011 — Bruce Bent Sr.'s local paper, the Manhasset Press, chronicles the tale of Bent as the co-creator of the first money market mutual fund back in 1969.

November 8, 2011 — Strategic Insight honors Bruce Bent Sr. at the research shop's 25th anniversary celebration at New York City's Chelsea Piers. Bent was one of 60 honored as visionaries who have shaped the course of the mutual fund industry. The list was first unveiled Aug. 1, 2011.

August 12, 2011 — The Bents ask a federal judge to grant summary judgment and toss the SEC's case.

February 3, 2011 — TD Ameritrade settles an SEC lawsuit over sales of the Reserve YieldPlus Fund.


December 13, 2010 — Bruce Bent Sr. and Bruce Bent II are the proud recipients of the Lump of Coal Awards, handed out by MarketWatch columnist Chuck Jaffe. The awards recognize fundsters for "misguided, bumbling, offensive, disingenuous, reprehensible or just plain stupid" actions. Other winners of the Coal award that year included Putnam Investments CEO Bob Reynolds; managers at the Baron Funds and the Bridgeway funds; investors in the VIX; trustees of the Virtus Funds; and AXA Rosenberg.

October 13, 2010 — The Wall Street Journal reports that Reserve Yield Plus Fund investors are threatening TD Ameritrade with a smear campaign.

September 3, 2010 — Court documents reveal that the Reserve team claims that the Primary Fund wasn't the only money fund that broke the buck.

August 26, 2010 — The SEC and Bruce Bent Sr. and his team fail to settle fraud accusations, after an "impasse" caused settlement discussions to fall apart a month prior to the publishing of this story.

July 16, 2010 — The Reserve Management Company makes its seventh distribution to Reserve Primary Fund shareholders, this time paying out $215 million. This leaves only 0.96 percent of the fund's Sept. 15, 2008 assets undistributed.

May 28, 2010 — Regulatory filings show that running the Reserve Primary Fund post-collapse and defending against related lawsuits isn't as expensive as heretofore thought. The firm revealed that it has requested to withdraw more than $106.2 million to cover said expenses, versus the $3.5 billion Bent and co. had initially set aside.

April 14, 2010 — Bruce Bent and Reserve Management Company sell all their Lehman Brothers holdings inside both Reserve Primary Fund and the Reserve Yield Plus Fund. The sale generates more than $170 million from the Primary fund and $6.45 million for Yield Plus.

March 12, 2010 — Reserve Management Company seeks a jury trial in the SEC's fraud cause against the firm. Bent and son also deny the allegations against them in a court document the day before.

February 24, 2010 — Judge Gardephe refuses to throw out the SEC's lawsuit against the Reserve Management Company.

January 27, 2010 — The Reserve Primary Fund makes its sixth distribution since breaking the buck in Sept. 2008. The $3.4 billion distribution represents about 95 percent of the fund's remaining asset value of $3.56 billion as of January 21. Reserve officials said about $160 million would remain in the fund to cover claims for indemnification expenses, management fees and other costs.


December 30, 2009 — The Reserve prepares to shell out $43 million more to YieldPlus Fund investors.

November 25, 2009 — U.S. District Judge Paul Gardephe orders a pro rate distribution of nearly all of the Primary Fund's remaining cash, leaving only 1.25 percent undistributed.

November 20, 2009 — The Reserve begins distributing $200 million of the $307 million remaining in its International Liquidity Fund.

November 12, 2009 — The board of the Reserve Yield Plus Fund decides to pause the liquidation of the final $85.5 million in the fund.

October 2, 2009 — The Reserve starts the fifth distribution to Primary Fund shareholders, this time sending out $1 billion of the $4.5 billion remaining in the fund.

September 24, 2009 — The Wall Street Journal reports that on October 2 the Reserve will distribute $1 billion of the $4.5 billion from the Primary Fund.

September 22, 2009 — Massachusetts Secretary of State William Galvin fights the Primary Fund distribution plan.

September 14, 2009 — Wall Street Journal reports that more 100 shareholders of the Reserve Yield Plus Fund ask the SEC to throw out the redemption freeze.

September 10, 2009 — The Associated Press reports that the Treasury's money fund backstop program will end according to schedule on September 18.

September 9, 2009 — Bloomberg celebrates the one-year anniversary of the Reserve Primary Fund breaking the buck with a detailed account of the fund's fate, as well as the fund's holdings and its shareholders. Notable tidbits include the fact that Bent Sr. was in Rome with his wife celebrating their 50th wedding anniversary when Lehman collapsed and all hell broke loose..

August 25, 2009 — The Reserve says it expects to pay Primary Fund shareholders up to $0.99 on the dollar in total.

August 19, 2009 — The Reserve files to dismiss the SEC's case.

August 17, 2009 — The MFWire discovers that the Bents filed with the SEC in April and July to change Reserve Management Corporation's name to Double Rock Corporation. Though Double Rock execs could not be reached for comment, SEC filings show that the leadership and location for Double Rock is essentially the same as Reserve's.

June 23, 2009 — The Reserve asks a U.S. District Court to toss the SEC's case.

June 16, 2009 — The Reserve starts cashing out up to $400 million from its International Liquidity Fund.

June 15, 2009 — The Wall Street Journal reports that Reserve has racked up $16.6 million in expenses since the Primary Fund fell in September.
— Also on June 15, the SEC and the Reserve revealed a September 23 court date for debating the distribution plan for the Primary Fund's remaining assets.

May 27, 2009 — The Reserve reveals plans to distribute the last assets from its U.S. Treasury Fund.

May 5, 2009 — The SEC files fraud charges against Reserve Management Company, Bruce Bent Sr., Bruce Bent II and Resrv Partners. Reserve countered that the company "intends to defend itself vigorously."

April 13, 2009 — The Reserve starts distributing another $2 billion to Primary Fund shareholders, leaving $4.8 billion in the fund.

April 1, 2009 — The Treasury extends its money market guarantee program again, from April 30 to September 18.

March 30, 2009 — Delores Monte, president of DM Financial Services, lodges a complaint with the New York Attorney General's office over the Reserve not yet distributing the final dough from the Primary Fund.

March 26, 2009 — SEC chair Mary Schapiro tells the U.S. Senate's Committee on Banking and housing that she wants to amp up money fund regulation.

March 13, 2009 — The Reserve begins the final $21.02-million distribution to shareholders of its Interstate Tax-Exempt Fund.

March 6, 2009 — The Reserve reveals that the SEC might recommend "a civil injunctive and/or institute a public administrative hearing against Resrv Partners," Reserve's broker-dealer (i.e. distribution) arm.

February 27, 2009 — Calamos files to liquidate its Government Money Market Fund on May 15.

February 26, 2009 — The Reserve sets aside $3.5 billion in Primary Fund assets, to continue drawing fees to cover expenses and pay for the legal battles.

February 6, 2009 — The Reserve unveils the final $1.95-million distribution to shareholders in its Florida Municipal Money-Market Fund.

February 4, 2009 — The Reserve starts distributing the final $12.8 million to shareholders of its New Jersey Municipal Money-Market Fund.

February 3, 2009 — The Federal Reserve extends its money fund support programs, from April 30 to October 30.

January 23, 2009 — Compliance Reporter reports that Reserve filed a lawsuit against law firms Dechert and K&L Gates, accusing them of "professional malpractice".

January 17, 2009 — The Wall Street Journal reports on Reserve's desperate attempts to find a rescuer in those fateful hours in September.

January 6, 2009 — At Reserve's request, Standard & Poor's stops rating eight Reserve funds on the liquidation chopping block.

January 5, 2009 — A U.S. District Court judge rules that a supervisor must oversee Reserve's expenses, including legal ones.


December 30, 2008 — The Reserve distributes $800 million to Yield Plus Fund investors.

December 23, 2008 — The Reserve reveals that they received a Wells Notice from the SEC.

December 22, 2008 — The New York Times reports that Bruce Bent II put his apartment in New York City's West Village up for sale with an asking price of $16.5 million.

December 15, 2008 — The Reserve reveals that the Yield Plus Fund might also have broken the buck when Lehman died.

December 9, 2008 — The Wall Street Journal reports that the Yield Plus lawsuit will go on, despite distributions to the fund's shareholders.

December 8, 2008 — The Wall Street Journal gives its take on why the Primary Fund fell.

December 5, 2008 — The New York Times highlights what one attorney describes as Reserve's "ingenious" plan to try to freeze the lawsuits it faces.

December 3, 2008 — The Reserve pays another $14.4 billion to Primary Fund shareholders, with only $9 billion left undistributed.

December 1, 2008 — Legg Mason expects to pump $523 million more into four money funds.
— Also on December 1, the Reserve finishes distributions to investors in six of its funds.
— Also on December 1, the Evergreen Institutional 100% Treasury Money Market Fund and the Allegiant Treasury Money Market Fund close to new investors.

November 26, 2008 — The Reserve reveals that the Primary Fund actually broke the buck five hours earlier than initially thought, i.e. at 11am and not at 4pm.

November 25, 2008 — Coughlin Stoia Geller Rudman & Robbins lodges a class-action complaint against both the Reserve and TD Ameritrade, attacking them for characterizing the Reserve Yield Plus Fund as an "enhanced cash fund" that's just like a money market fund.

November 24, 2008 — MFWire reports that two Reserve executives, Eric Lansky and David Young, just left.
— Also on November 24, the Treasury extends the money market guarantee program from December 18 to April 30.

November 21, 2008 — The Reserve plans a second, $14-billion cash distribution to Reserve Primary Fund shareholders, slated for December 5.

November 20, 2008 — The U.S. Treasury promises $5.6 billion to backstop the Reserve U.S. Government Fund.

November 19, 2008 — The Reserve hires Merrill Lynch Investment Management veteran Joseph T. Mongale Jr. to handle the liquidation of its Primary and Government funds.

November 13, 2008 — The Reserve begins a $4.6-billion distribution to investors in its U.S. Government Fund.

November 12, 2008 — The Wall Street Journal worries that another money fund might break the buck, too.

November 11, 2008 — The Wall Street Journal reports that the Federal Reserve's proposed Money Market Investor Funding Facility is being delayed.

November 10, 2008 — USA Today covers the Reserve saga.

November 7, 2008 — New York State Supreme Court Justice Barbara Kapnick approves Denis O'Connor of Alix Partners as the oversee of distributions from Reserve's International Liquidity Fund.

November 4, 2008 — The ICI picks Vanguard chairman John Brennan to lead the brand new "Money Market Working Group."

October 30, 2008 — The Reserve makes its first distribution, of $26 billion, to investors in the Primary Fund.

October 29, 2008 — The New York Times likens the freezing of the Reserve Primary Fund to a bank holiday during the Great Depression.
— Also on October 29, Franklin Templeton prepares to liquidate its $34-million Franklin Templeton Money Market Fund.
— Also on October 29, Morgan Stanley reveals that in October it bought up $23 billion in securities from its money market and liquidity funds, even as $46 billion flows out.

October 23, 2008 — The Reserve begins sending $28 billion to shareholders of the Primary and Government funds.

October 21, 2008 — The Fed offers to buy up to $540 billion in money market mutual fund assets via the new Money Market Investor Funding Facility.

October 20, 2008 — Ameriprise's lawyers demand audio recordings, e-mails and depositions from the Reserve.

October 17, 2008 — A New York State Supreme Court judge delays redemptions from the Reserve International Liquidity Fund yet again.

October 16, 2008 — The Wall Street Journal reports that the China Investment Corp expects to pull $5 billion out of the wreckage of the Reserve Primary Fund.

October 15, 2008 — The Reserve furnishes more details on redemptions from the Primary Fund.

October 13, 2008 — The Reserve delays distributions from the Primary Fund. The Wall Street Journal takes notice.

October 9, 2008 — The Reserve asks the Treasury to cover its money funds in the new guarantee program.
— Also on October 9, the Reserve put 15 more funds on the chopping block.

October 7, 2008 — Vanguard, Hartford, Prudential, Fidelity and T. Rowe Price decide to take the Treasury up on its guarantee offer.

October 6, 2008 — ICI president and CEO Paul Schott Stevens speaks about the trade group's role in the money market crisis.
— Also on October, two shareholders in Reserve's International Liquidity Fund sue the money fund shop over the redemption freeze.

October 3, 2008 — Bent Sr. takes to the web to speak directly to Primary Fund shareholders.
— Also on October 3, Reuters reports that mutual fund titans Fidelity and Vanguard haven't decided whether or not to join the Treasury program.

October 2, 2008 — The Wall Street Journal lists the money fund shops that have signed up for the Treasury's program so far. UBS signed on, too.

October 1, 2008 — Wachovia buys up Lehman Brothers debt held by three Evergreen (now part of Wells Fargo) money funds.
— Also on October 1, Putnam signs on to the Treasury guarantee program.
— Also on October 1, the Reserve begins to pull the plug on its U.S. Government Fund.

September 29, 2008 — The Wall Street Journal profiles a 40-year-old widower and Reserve Yield Plus Fund investor who can't access his money.
— Also on September 29, the Treasury offers more details on its money fund guarantee program.
— Also on September 29, the Reserve decides to liquidate the Primary Fund.
— Also on September 29, Morgan Stanley Investment Management signs on to the Treasury's backstop program.

September 26, 2008 — Industry data shows money beginning to flow back into money funds.

September 25, 2008 — RBC commits up to $35 million to protect Reserve Primary Fund investors who are clients of RBC's Ferris Baker Watts subsidiary.

September 24, 2008 — Putnam strikes a deal with Federated, moving the fallen Putnam Prime Money Market Fund's assets into the Federated Prime Obligations Funds.
— Also on September 24, discount brokerage TD Ameritrade vows to make its Reserve Primary Fund investors hole, and Ameriprise follows suit. The Wall Street Journal covers the moves.

September 19, 2008 — The U.S. Treasury steps in to guarantee money funds' assets, giving the industry access to a $50-billion pool. ICI president and CEO Paul Schott Stevens and other fundsters speak out in support of the Treasury's plan. The Wall Street Journal details the Treasury's plan.
— Also on September 19, the Wall Street Journal reports that investors withdrew $13 billion from money funds on September 15, $33.7 billion on September 16, $78.7 billion on September 17, and more on September 18.
— Also on September 19, Legg Mason props up three money markets to the tune of $151 million.
— Also on September 19, the Reserve asks the SEC for a time extension for redeeming shares of its Primary and U.S. Government funds.
— Also on September 19, brokerage Ameriprise sues Reserve, accusing the money fund shop of tipping off large money-fund investors before the Primary Fund's collapse. The Third Avenue Institutional International Value Fund files a similar suit.

September 18, 2008 — The Reserve freezes 23 money market and short-term bond funds, including the Primary Fund. The freeze prevents investors from purchasing new shares and stalls redemptions for seven days.
— Also on September 18, the Wall Street Journal highlights the irony in some of Bent Sr.'s public quotes about money fund's prior to the collapse of Lehman Brothers.
— Also on September 18, Putnam reveals plans to liquidate the Putnam Prime Money Market Fund "in reaction to marketwide liquidity issues." Standard & Poor's later put the Putnam fund on "CreditWatch Negative".

September 17, 2008 — Shareholders of the Reserve Primary Fund sue Reserve, accusing the money market shop of chasing high-yields instead of preserving capital.
— Also on September 17, Russell Investments and Wachovia's Evergreen Investments (now part of Wells Fargo), and Bank of New York Mellon and Columbia all pour cash into their own money funds.
— Also on September 17, Deustche Asset Management, Fidelity, Invesco, Legg Mason and Vanguard all reassure investors about the safety of their money funds.

September 16, 2008 — The Reserve Primary Fund breaks the buck, thanks to the collapse of Lehman Brothers — the fund held $785 million of Lehman Brothers debt, now valued at zero. The fund's NAV falls to $0.97 per share, creating a $1.95-billion hole.

September 15, 2008 — Lehman Brothers announces plans to file for Chapter 11 bankruptcy. 

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