NEW YORK, April 14 (Reuters) - The Reserve Primary fund, a money market fund whose value dropped below $1 per share after Lehman Brothers Holdings Inc LEHMQ.PK went bankrupt, said it has sold the $785 million of Lehman debt it held at around 22 cents on the dollar.
Reserve sold the debt for net proceeds of about $170.2 million, after commissions, according to a Wednesday filing in Manhattan federal court.
Alarm about the Reserve fund’s holdings touched off an investor run after Lehman’s Sept. 15, 2008 bankruptcy shook the financial world, causing the fund’s net asset value to “break the buck.”
The filing, in a lawsuit brought by the U.S. Securities and Exchange Commission, said the Primary Fund held $250 million face amount of “floating rate notes” and $535 million in commercial paper.
“The FRN’s were sold, after commissions, at 22-1/4 cents on the dollar and the commercial paper was sold, after commissions, at a blended rate of 21.42 cents on the dollar,” the filing said.
“In light of the sale of the Lehman position, the Fund board intends promptly to consider a further distribution to investors,” it added.
Money funds are supposed, but not guaranteed, to maintain a constant $1 per share price. For decades, the $1 net asset value had been considered an article of faith among investors, who considered the funds as safe as cash.
The SEC last year sued Reserve Management Co and co-founder Bruce Bent Sr for fraud over the Reserve Primary fund’s collapse. The fund once held $62 billion of assets.
The case is SEC v Reserve Management Co et al, U.S. District Court, Southern District of New York, No. 09-4346. (Reporting by Grant McCool, additional reporting by Jonathan Stempel)