Over a two day period in September 2008, after the news of Lehman Brothers’ bankruptcy filing roiled the US financial markets, Defendants engaged in a systematic campaign to deceive the investing public into believing that the Primary Fund -their flagship money market fund -was safe and secure despite its substantial Lehman holdings. That campaign involved both the knowing dissemination of false information to the Primary Fund’s Board of Trustees, investors, and rating agencies and, in the case of certain Defendants, the knowing concealment of the true effect of the Lehman holdings on the Fund.Read the rest of the SEC’s complaint against the senior management of the $63bn Reserve Primary fund – which broke the buck in September 2008 - here.
In essence though, these were the offending statements from the fund’s executives:
In order to falsely assure shareholders, the Board, and the rating agencies that the Fund’s $1.00 NAV would remain intact, and that the Fund remained a safe and liquid investment, Defendants published, or authorized the dissemination of, numerous materially false statements, including that:
a. RMCI “intended to protect” the $1.00 NAV ofthe Primary Fund to “whatever degree is required;”
b. RMCI and the Bents had sufficient capital available to maintain the Fund’s NAV at $1.00 in the event it fell below that level;
c. RMCI was in the process ofexecuting a credit support agreement whereby it would provide capital to the Primary Fund to allow it to maintain a per share NAV of$1.00;
d. RMCI had submitted a request for ”no-action” relief to the Commission to implement a credit support agreement to protect the $1.00 NAV ofthe Fund, and expected such reliefto be granted within hours; and
e. The Primary Fund was liquid and was timely honoring shareholder redemptions.
In addition to which, the SEC alleges that management withheld crucial information about the disastrous number of redemptions the fund was suffering from, and skewed the redemption process to the benefit of some investors more than others.
Related links:
Heads of collapsed fund charged with fraud – FT
Wednesday catastrophe: breaking the buck – FT Alphaville