Reserve Management submitted court documents Thursday denying that it, founder Bruce Bent or his son Bruce Bent II intentionally tried to mislead investors in the flagship $62 billion Reserve Primary Fund into believing the now-defunct fund that broke the buck was solvent.
The defendants also requested a jury trial.
The U.S. District for the Southern District of New York last month denied Reserve's request to dismiss the lawsuit, Reserve arguing that the SEC had no "precedent for such charges in the 75-year history of federal securities laws."
U.S. District Court Judge Paul Gardephe said the lawsuit can proceed since he deemed that the SEC adequately proved that the defendants committed fraud through misstatements and omissions of facts (see MME, Feb. 25, 2010).
In its May 2009 lawsuit, the Securities and Exchange Commission charged that Reserve withheld and issued false information in the chaotic days after Sept. 15, 2008, when the fund fell below its $1.00 NAV. The SEC said Reserve and its executives "engaged in a systematic campaign to deceive the investing public into beleiving that the Primary Fund was safe and secure despite its substantial [$785 million] Lehman holdings. To persuade investors to refrain from redeeming shares, defendants systematically violated federal securities laws by misrepresenting material facts, most notably by falsely assuring shareholders that Reserve Management [would] provide the fund with sufficient capital to maintain its NAV at $1.00."
At the next conference on the case, Securities and Exchange Commission v. Reserve Management Co. et al, on March 23, the court will determine whether a settlement is possible.