By Basil Katz
NEW YORK, Nov 7 (Reuters) - A lawyer for investment fund
pioneer Bruce Bent asked jurors on Wednesday to acquit his
client of civil fraud charges, saying the 2008 financial crisis
was as hard to predict as Superstorm Sandy.
Bent and his son were acting in good faith when their funds
fell victim to an economic maelstrom in September 2008, attorney
John Dellaportas told the jury in closing arguments in federal
court in Manhattan.
Dellaportas said the effect of the financial crisis on the
Bents' funds was as unpredictable as the effect of Sandy on New
York City last week. "What happened in 2008 was essentially the
equivalent of what happened here," he said.
Closing arguments in their month-long trial had been
scheduled for Oct. 29, but were delayed by Sandy when the storm
knocked out power to the federal courthouse in lower Manhattan
SEC attorney Alexander Janghorbani told the jury the Bents
"knew they didn't have the money" to repay their investors. They
"told their trustees, they told their investors, what they
wanted to hear ... when they knew they couldn't deliver their
promise," he said.
The U.S. Securities and Exchange Commission sued Bent, his
son Bruce Bent II and their family-run Reserve Management firm
in 2009, saying they lied to investors about the safety of their
money after Lehman Brothers filed for bankruptcy on Sept. 15,
Much of the trial focused on the sequence of events on Sept.
15 and 16, 2008.
At the time, Reserve held $785 million in Lehman debt, or
1.2 percent of the $62 billion invested in its funds. There was
a run on the funds and Reserve was unable to keep up with demand
for redemptions as liquidity dried up in the market turmoil.
On Sept. 15, the day of Lehman's collapse, the Bents told
the board of trustees and the SEC about the run on their funds,
Bent said when he took the stand last month. Bent and his son
spent a total of seven days on the stand.
Part of the defense strategy was to shift the blame onto the
SEC, saying that the government should have made Reserve part of
the bailout of financial institutions in the crisis.
Reserve Primary "broke the buck" - an almost unheard of
event for money market funds when their net asset value falls
below $1 a share. By January 2010, Reserve Management said it
had distributed nearly all of the $50.5 billion left in its
Reserve Primary fund after Lehman's bankruptcy.
Investors recovered about 99 cents on the dollar.
The regulators and the Bents failed to reach a settlement
and the case went to trial on Oct. 9 before U.S. District Judge
The jury is being asked to decide whether or not the Bents
played by the rules of the securities markets. The SEC seeks
unspecified gains the Bents might have made and a fine.
The jury was expected to begin deliberations later on
Reserve Primary was the first money market fund in the
United States when Bruce Bent started it in 1970. Its collapse
was a driver of the credit market seizure following Lehman's
bankruptcy. New regulations have since reduced the credit and
The case is SEC v. Reserve Management Co et al, U.S.
District Court, Southern District of New York, No. 09-cv-04346.
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