* Bruce Bent and son expected to testify at NY civil trial
* Bents fraudulently told investors that fund was safe-SEC
* Fund managers could not have foreseen world crisis-defense
By Grant McCool
NEW YORK, Oct 9 A jury is being asked to decide
whether money market pioneer Bruce Bent and his son played by
the rules when their fund became a victim of the collapse of
Lehman Brothers in September 2008.
Opening a civil fraud trial in Manhattan federal court on
Tuesday, a U.S. Securities and Exchange Commission lawyer said
the Bents lied to investors and trustees in attempts to stop a
run on their Reserve Fund on Sept. 15 and 16, 2008.
Hours after Lehman went bankrupt on Sept. 15 and markets
worldwide were in turmoil, "wasn't this a moment that cried out
for honest answers?" SEC lawyer Nancy Brown asked the jury. She
said the Bents told investors what they wanted to hear - that
the Bents intended to use their own money to keep investments
"The evidence shows, it was a lie, plain and simple," Brown
Reserve held $785 million in Lehman debt, or 1.2 percent of
the $62 billion it then had invested. The day after Lehman filed
the biggest bankruptcy in history, the fund's net asset value
"broke the buck" or fell below $1 a share.
The Bents' lawyer, in his opening argument, offered a
different story, however. Reserve did not have enough money to
cover a rush of redemptions, and the Bents told the board of
trustees and the SEC itself that was the case, he said.
"They were people trying their best under absolutely
unprecedented circumstances," the lawyer, John Dellaportas, told
the nine-member jury. He said the law demands that money
managers take reasonable care and "they said what they intended
to do at the time and they meant it."
The market regulator sued Bruce Bent, his son Bruce Bent II
and the Reserve Management company in 2009 for breaking
securities laws. It seeks unspecified gains the Bents might have
made and a fine in the trial, before U.S. District Judge Paul
Reserve was the first money-market fund in the United States
when it started in 1970 by Bruce Bent. Its collapse was a driver
of the credit market seizure following Lehman's bankruptcy. New
regulations have since reduced the credit and maturity risks
that money funds may take.
By January 2010, Reserve 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
The Bents' lawyer told the jury that there was no fraud or
cover-up by father and son as the SEC lawsuit maintained, during
a 12-hour period over two days in mid-September 2008.
"We say the world changed between Monday and Tuesday and we
have a lot to support that," Dellaportas, said. He said his
clients would take the witness stand "to look you in the eye and
tell you what happened."
The Bents could testify as soon as Wednesday in a trial that
is expected to last three weeks.
The case is SEC v. Reserve Management Co et al, U.S.
District Court, Southern District of New York, No. 09-04346