UPDATE: Hearing Set On SEC's Plan For Reserve Primary Fund
17 June 2009 - 1:59AM
Dow Jones News
A U.S. district court has ordered that those objecting to the
Securities and Exchange Commission's distribution plan for the
Reserve Primary Fund must file a statement of objection by July 22
and set a September hearing on the regulator's plan.
The SEC has proposed that the remaining assets of the troubled
money-market fund be distributed on a pro rata basis to
shareholders whose shares haven't been fully redeemed since Sept.
15, 2008. The regulator also is seeking an order enjoining the
Primary Fund from distributing any fund assets, other than for pro
rata distributions to investors or ordinary and necessary
expenses.
Those who object to the commission's plan must file a statement
of objection with the U.S. District Court for the Southern District
of New York by July 22. The regulator and the Primary Fund will
file any responses to those objections by Aug. 21.
The court will hold a hearing at 9:30 a.m. Sept. 23 on whether
it will approve the SEC's plan. That hearing will be held in
courtroom 18B of the U.S. Courthouse on 500 Pearl Street in New
York City.
By June 22, the Primary Fund will mail copies of the court order
to all shareholders of record for unredeemed shares in the fund as
of Sept. 15, 16, 17 or 18, 2008. The order is also available on the
Web sites of Reserve Management Co. and the SEC.
Reserve Primary Fund "broke the buck" in September 2008, meaning
its net asset value fell below the $1 a share money-market funds
strive to maintain. It held $785 million in Lehman Brothers
Holdings Inc. debt and suspended redemptions Sept. 16, 2008. The
fund and its management face numerous lawsuits in relation to its
troubles.
The once-$63-billion fund had $4.55 billion in remaining assets
as of June 11, according to its adviser. It's holding $3.5 billion
of that in a special reserve, to be used for costs and expenses,
including legal and accounting fees, pending or threatened claims
against it, its officers and trustees, and claims that could be
made against its assets.
To date, Primary Fund shareholders have received about 89 cents
on the dollar. The SEC objects to the creation of the special
reserve fund and contends that if remaining assets were distributed
on a pro rata basis, investors would recover about 98.4 cents per
share.
The commission objects to the Primary Fund's plan to withhold
the $3.5 billion from shareholders until pending and future
lawsuits are resolved. In its May 5 complaint, the regulator said
that the resolution of lawsuits against Reserve Management; Reserv
Partners Inc., the fund's distributor; Bruce Bent Sr., the founder
of the Primary Fund; and his son, Bruce Bent II; among others, may
lead to "conflicting judicial determinations and inconsistent
treatment of shareholders, as well as an inexorable and piecemeal
drain on the fund's assets."
Amerprise Financial Inc. (AMP), a broker that put retail clients
into the fund, has alleged in a federal lawsuit that the Primary
Fund "secretly" tipped off institutions to cash out in light of the
Lehman debt. Reserve Management has called claims that it gave
investors early word of its problem "absurd."
Harvey Wolkoff, a partner with Boston-based Ropes & Gray and
lead attorney on the Ameriprise lawsuit, said Ameriprise supports
the SEC's proposal. "Ameriprise believes that all of the investors
in the Reserve Primary Fund should be treated equally whether they
redeemed" before the fund suspended redemptions or not, Wolkoff
said. The only fair resolution is to place all shareholders in the
same position, he said.
The SEC's plan would eliminate the $3.5 billion special reserve
that has been set aside and distribute that money, but lawsuits
would continue to try to make up for any losses, Wolkoff said.
"It does mean that Ameriprise and its investors would get less
than $1 per share," he said. "But Ameriprise then has a remedy
against the Bents and others who are representing the fund ... to
try to make up the difference so that the investors are made
whole."
-By Daisy Maxey, Dow Jones Newswires; 212-416-2237;
daisy.maxey@dowjones.com