NEW YORK (Reuters) - Money market pioneer Bruce Bent will testify on Thursday at a trial in which U.S. market regulators accuse him and his son of fraud as they tried to stop a run on their Reserve Fund in the September 2008 financial crisis.
On the second day of the civil trial in Manhattan federal court on Wednesday, a lawyer for the U.S. Securities and Exchange Commission told the judge she would call Bent to the witness stand on Thursday.
The regulator sued Bent and his son, Bruce Bent II, in 2009, saying they lied to investors about the safety of their money following the September 15, 2008 bankruptcy of Lehman Brothers, an event that roiled world financial markets. 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, a rare event that spells death for conservative money market funds.
Also on Wednesday, U.S. District Judge Paul Gardephe excused one of the nine jurors because her employer would pay her for only three days out of the expected three weeks of the trial.
The judge told the juror, a secretary in a doctor’s office, “we don’t want to put you in a position where you have no income coming in for three weeks” and sent her home.
Reserve 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 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 dollar.
The SEC and the Bents were unable to reach a settlement. The regulator seeks unspecified gains the Bents might have made and an unspecified fine if the jury decides the SEC proved its case.
In opening arguments on Tuesday, SEC lawyer Nancy Brown accused the Bents of lying to investors and trustees on September 15 and 16, 2008 in the scramble to save themselves. The Bents’ lawyer, John Dellaportas, said there was no fraud or cover-up and told jurors no one could have foreseen the massive scale of the financial crisis that sapped investor confidence.
The case is SEC v. Reserve Management Co et al, U.S. District Court, Southern District of New York, No. 09-04346
Reporting By Grant McCool; Editing by Richard Chang