Bruce R. Bent II, president of the failed $62.5 billion Reserve Primary money-market fund, was found liable for one claim that he negligently violated a securities law while his father was absolved of any liability in a lawsuit brought by the Securities and Exchange Commission.
After two and half days of deliberations over three days, the panel of six women and one man in Manhattan today cleared the younger Bent of six out of seven claims. His father, Bruce R. Bent, was cleared of all four claims against him, including that he “knowingly and recklessly violated” U.S. securities law.
The SEC sued the Bents, their investment advisory firm Reserve Management Co. and Resrv Partners Inc. in 2009, alleging they had defrauded customers by falsely claiming they would support the fund financially when it faced a run by investors in the wake of the 2008 Lehman Brothers Holdings Inc. bankruptcy.
The fund held $785 million in Lehman debt on Sept. 15, 2008, the day Lehman filed the biggest bankruptcy in history, causing the run on the fund and triggering its failure the following day when it “broke the buck” by failing to maintain a $1-a-share net asset value.
The SEC alleged the Bents lied on the morning after Lehman announced its bankruptcy, falsely telling investors, regulators and the fund’s trustees that they would use money from their firm, Reserve Management Co., to support the $1 net asset value of fund shares. The elder Bent was vacationing in Italy when Lehman collapsed.
The jury today found that RMCI and Resrv Partners “knowingly and recklessly” violated federal securities laws and that RMCI had violated a federal law regulating investment advisers. The panel also found Bruce Bent II hadn’t participated in the recklessness of the entities.
“I wanted to thank the jury for all their time and attention,” Bruce Bent II said in an interview after court. “We are very pleased that my father and I have been completely cleared of any fraud whatsoever.”
John Dellaportas, a lawyer for the Bents, said he was assessing whether they would appeal the jury’s verdict on claims in which the jury found Bruce Bent II, the Resrv Partners or RMCI negligent.
“We are considering whether or not we’ll appeal,” he said after court.
Both Bents testified in their own defense in the trial, which began Oct. 9. The commission seeks disgorgement of unspecified ill-gotten gains, a civil fine and an order barring the defendants from violating the securities laws in the future.
“Today’s verdict of liability sends the message that fund executives cannot withhold from investors and trustees key information about their fund’s vulnerability,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement. “This case, along with our actions against more than 100 other entities and individuals, demonstrates our continuing commitment to pursuing cases arising out of the financial crisis.”