US judge OKs speedy discovery in Primary Fund suit

NEW YORK, Sept 23 (Reuters) - A judge has expedited a lawsuit brought by Ameriprise Financial Services Inc (AMP.N) accusing the Reserve Primary Fund of tipping certain investors about a crisis at its money-market mutual fund spurred by losses on debt issued by Lehman Brothers Holdings Inc.

U.S. District Court Judge Paul Magnuson in Minnesota granted the request by Ameriprise's lawyers for fast-track discovery of documents and other information related to the case, attorneys involved in the litigation said. He set Wednesday for a scheduling conference.

The fund halted redemption of shares last week when its net asset value fell below $1.

A spokeswoman for the fund declined to comment on the Ameriprise case, as well as other lawsuits filed in U.S. District Court in Manhattan since the fund's net asset value fell to 97 cents on Sept. 16.

The net asset values, or NAVs, of money-market funds are never supposed to fall below $1 a share -- an event known as "breaking the buck." Money market funds are regarded as super- safe vehicles, buying interest-bearing securities that mature within a year and frequently within a week or month.

The Reserve Primary Fund REPXX.ORPLXX.O is run by New York-based Reserve Management Corp. The fund's chairman, Bruce Bent, is known as the "father" of money funds, after creating the first money market mutual fund in 1970 with a partner.

The fund's assets tumbled because of its losses on debt issued by Lehman LEHMQ.PK, which filed for bankruptcy protection on Sept. 15. The fund said it had about $23 billion in assets last Tuesday, down from about $65 billion as of Aug. 31.

The complaint filed in Minnesota on Friday accused the fund of tipping large institutional investors before the announcement the buck was being broken. Ameriprise, a broker- dealer, serves retail investors.

Robert Skinner, an attorney for the brokerage, said in a telephone interview that Ameriprise "is anxious for the opportunity to shed some light on the illegal tipping that we believe occurred, to ensure that the small shareholders and the large institutional shareholders get equal treatment when the fund is distributed."

Attorneys for the fund argued that an order on Monday by the Securities and Exchange Commission eliminated the need for expedited discovery, according to court documents.

"Defendants are trying to work with the SEC to ensure an orderly plan of redemption for the shareholders of the Primary Fund," it said in a memorandum filed on Tuesday.

The fund's lawyer, Barbara Berens, declined comment.

The memorandum said the SEC order provides for "an orderly plan of liquidation of fund assets to meet outstanding redemption requests and for making appropriate payment to the fund's shareholders."

Another lawsuit, filed last on Wednesday in U.S. District Court in Manhattan, seeks damages for shareholders who had not redeemed their shares as of Sept. 16, when the fund halted redemptions.

The lawsuit said the fund "deviated from its stated investment objective by sacrificing preservation of capital and liquidity in pursuit of higher yields.

"This strategy was exemplified by the Fund's disastrous and unreasonable concentration of $785 million face value in commercial paper issued by Lehman," it said. (Editing by Andre Grenon)