Mutual fund inventor may face charges

By Christopher Condon  |   2008-12-25  |     NEWSPAPER EDITION

BRUCE Bent, inventor of the money-market mutual fund, and his New York-based company may be charged by federal regulators with violating securities laws in the collapse of its US$63-billion Reserve Primary Fund.

Reserve Management Co was told last week by the enforcement division of the United States Securities and Exchange Commission that it will recommend suing the company and Bent, its chairman, Reserve said yesterday. The closely held firm also expects the agency to file complaints against Bent's sons, Bruce Bent II and Arthur Bent III, Bloomberg News said.

Reserve Primary's value fell below the US$1-a-share price paid by investors on September 16 because of losses from debt issued by bankrupt Lehman Brothers, making it the first money-market fund in 14 years to break the buck. The fund's demise sparked a run on money-market accounts and at least 19 lawsuits over how it was managed and how the losses should be divided among investors.

"The scrutiny to date has likely centered on valuation issues related to the Lehman paper and communications with shareholders," Peter Crane, president of Crane Data, a research firm based in Massachusetts, said.

The Bents and the company "expect to defend vigorously against the allegations," Reserve said.

SEC staff have been investigating the fund since it broke the buck.

Bent is credited with having invented the money-market mutual fund in 1970, creating a safe and liquid place for retail investors to park cash.

He was also known for lecturing fellow money-fund managers for taking on excessive risk.