Father of money market funds charged with fraud

NEW YORK/WASHINGTON (Reuters) - The father of the money market mutual fund -- investor Bruce Bent -- was charged with fraud by U.S. regulators on Tuesday over accusations he deceived investors into believing his flagship fund was safe before it "broke the buck" last year.

The civil charges against the veteran money manager, his son and their investment company come eight months after the Reserve Primary Fund, loaded with Lehman Brothers debt, halted redemptions after the investment bank declared bankruptcy, sparking a run on money-market funds.

The fund's net asset value fell below $1 after Lehman's bankruptcy last September, meaning that investors who thought their funds were safe had lost money.

The fund is being liquidated and its collapse has spurred numerous lawsuits. Its demise has been a stunning turn for Bent, who regulators called "the public face" of the fund and "a longtime advocate of the safety and stability of money market funds."

The Reserve Primary Fund's failure has been a tragedy for investors and the Bents, said Peter Crane, president of Crane Data and publisher of Money Fund Intelligence.

.......... the Washington Post notes that Robert’s not the only Murtha doing government business............His father, John Murtha’s brother Robert Sr, runs another highly-successful lobbying group, KSA, that specializes in — wait for it — defense contracts from the Appropriations Committee.

There may be good reasons to occasionally award no-bid contracts for highly specialized work, but warehousing doesn’t fall into that category.

Granting no-bid Pentagon contracts to a powerful Congressman’s nephew screams for an investigation, and a deeper look at the “culture of corruption” that seems to surround John Murtha and his allies on Capitol Hill.

Thanks for the ping.

Without details, sounds like a very strange charge. It's very difficult to prove what is "safe" in a non-insured money market funds (as opposed to FDIC-insured money market accounts, within general insured limits, the $100K per account) unless authorities threatened members of the family and have someone to testify for them, or rely on the general "let's get greedy bankers" atmosphere to make up for their failures to police real fraudsters like Madoff and Sanford, who had extensive political connections.

It may just be a diversion and scapegoating in a broad "War on Wall Street" that Obama and Soros and FDIC's Sheila Bair, among others, are engaged right now, to get complete control of financial system. Witchhunts and punishment of the uninvolved are in order...

Civil charges mean government doesn't need unanimous verdict in the case, so they may be more difficult to defend against, especially in a politically charged mob atmosphere. Just look at the "bonus" retention contracts of AIG.

Reserve Primary Fund broke the buck when Lehman declared bankruptcy and they held a load of their bonds which became potentially worthless. There was no fraud involved with that.

"Its demise has been a stunning turn for Bent, who regulators called "the public face" of the fund and "a longtime advocate of the safety and stability of money market funds."

By that reasoning SEC should charge Warren Buffet whose investors lost almost half their money in a couple of months around the same time, and who is commenting on economy and market on TV all the time. PRF held AAA rated corporate bonds which is "safer" than investing in any stock, including Buffet's Berkshire Hathaway.

"Investments", unlike "deposits", are not insured and are not sold as such. Investors in failed banks lost their money, depositors in various insured accounts and instruments (to the extent of insured amounts) have not lost a penny.

Is this the run that took place on 9/11 ?

Reserve Primary Fund breaking the buck was the trigger to the run. Lehman filed for bankruptcy on September 14, 2008. RPF had to immediately zero out the value of the Lehman's bond on their book by end of the day. That broke the buck, i.e. RPF's NAV (net asset value) became less than $1, and fund became illiquid and could not meet redemptions. That, in turn, started the electronic run on all the mutual money market funds, which threatened to destroy US financial system because there was not enough liquidity. Like in game of musical chairs, everyone in the know wanted to be the first to move money out of MMFs into Treasuries or other instruments.

That prompted Fed to shut down electronic withdrawals by September 18, 2008.

Defusing A $5.5T Run On The Banks - FR, February 15, 2009

Related links to threads by FromLori are inside that thread.

I have to emphasize that there has been no illegality in any of this on the part of PRF. As a matter of fact, they did exactly the most responsible thing that they could do under the circumstances, protecting their depositors and investors. Trying to liquidate the fund to meet redemptions would have been disastrous, both for the fund and the market in general.

Fed and Treasury started working immediately to provide massive liquidity for the banks and the market, to stave off "run on the banks" panic and similar liquidity problems.

IIRC, Bent family is a contributor to Club For Growth.

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