February 25, 2010 / 12:00 AM / 10 years ago

UPDATE 1-Reserve Mgmt, Bent lose bid to dismiss SEC suit

* Collapse of biggest U.S. money market mutual fund

* Court conference set for March 23

NEW YORK, Feb 24 (Reuters) - A Manhattan federal judge on Wednesday refused to dismiss a U.S. Securities and Exchange Commission lawsuit accusing Reserve Management Co and co-founder Bruce Bent Sr of fraud over the largest ever collapse of a U.S. money market mutual fund.

U.S. District Judge Paul Gardephe said the SEC sufficiently alleged wrongdoing behind the collapse of the Reserve Primary fund, whose value dropped below $1 per share after Lehman Brothers Holdings Inc LEHMQ.PK went bankrupt. The fund once held more than $62 billion of investor assets.

The SEC accused the defendants of deceiving investors into believing the fund was safe.

Lawyers for Reserve, Bent Sr and his son, Bruce Bent II, who was Reserve’s president, were not immediately available for comment. Gardephe set a March 23 conference to discuss the case further, including whether a settlement is possible.

The Reserve Primary fund was holding $785 million of Lehman commercial paper when Lehman went bankrupt on Sept. 15, 2008.

Alarm about that holding touched off an investor run, causing the fund’s net asset value to fall below $1 per share, or “break the buck.”

Money funds are supposed to maintain a constant $1 per share price, but are not guaranteed to do so. The $1 share price had long been considered an article of faith among investors who viewed the funds as being as safe as cash.

The case is Securities and Exchange Commission v Reserve Management Co et al, U.S. District Court, Southern District of New York, No. 09-04346. (Reporting by Jonathan Stempel, editing by Leslie Gevirtz)

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