UPDATE 1-Bruce Bent's lawyer: financial crisis just like Sandy
* U.S. regulator accuses Bent of lying to investors in 2008
* Bent denies fraud, says unforeseen events to blame
* Bruce Bent and son testify at New York civil trial
By Basil Katz
NEW YORK, Nov 7 (Reuters) - A lawyer for investment fund pioneer Bruce Bent asked jurors on Wednesday to acquit his client of civil fraud charges, saying the 2008 financial crisis was as hard to predict as Superstorm Sandy.
Bent and his son were acting in good faith when their funds fell victim to an economic maelstrom in September 2008, attorney John Dellaportas told the jury in closing arguments in federal court in Manhattan.
Dellaportas said the effect of the financial crisis on the Bents' funds was as unpredictable as the effect of Sandy on New York City last week. "What happened in 2008 was essentially the equivalent of what happened here," he said.
Closing arguments in their month-long trial had been scheduled for Oct. 29, but were delayed by Sandy when the storm knocked out power to the federal courthouse in lower Manhattan last week.
SEC attorney Alexander Janghorbani told the jury the Bents "knew they didn't have the money" to repay their investors. They "told their trustees, they told their investors, what they wanted to hear ... when they knew they couldn't deliver their promise," he said.
The U.S. Securities and Exchange Commission sued Bent, his son Bruce Bent II and their family-run Reserve Management firm in 2009, saying they lied to investors about the safety of their money after Lehman Brothers filed for bankruptcy on Sept. 15, 2008.
Much of the trial focused on the sequence of events on Sept. 15 and 16, 2008.
At the time, Reserve held $785 million in Lehman debt, or 1.2 percent of the $62 billion invested in its funds. There was a run on the funds and Reserve was unable to keep up with demand for redemptions as liquidity dried up in the market turmoil.
On Sept. 15, the day of Lehman's collapse, the Bents told the board of trustees and the SEC about the run on their funds, Bent said when he took the stand last month. Bent and his son spent a total of seven days on the stand.
Part of the defense strategy was to shift the blame onto the SEC, saying that the government should have made Reserve part of the bailout of financial institutions in the crisis.
Reserve Primary "broke the buck" - an almost unheard of event for money market funds when their net asset value falls below $1 a share. By January 2010, Reserve Management said it had distributed nearly all of the $50.5 billion left in its Reserve Primary fund after Lehman's bankruptcy.
Investors recovered about 99 cents on the dollar.
The regulators and the Bents failed to reach a settlement and the case went to trial on Oct. 9 before U.S. District Judge Paul Gardephe.
The jury is being asked to decide whether or not the Bents played by the rules of the securities markets. The SEC seeks unspecified gains the Bents might have made and a fine.
The jury was expected to begin deliberations later on Wednesday.
Reserve Primary was the first money market fund in the United States when Bruce Bent started it in 1970. Its collapse was a driver of the credit market seizure following Lehman's bankruptcy. New regulations have since reduced the credit and maturity risks.
The case is SEC v. Reserve Management Co et al, U.S. District Court, Southern District of New York, No. 09-cv-04346.