By Basil Katz and Sarah N. Lynch
NEW YORK, Nov 12 (Reuters) - Money market pioneer Bruce Bent
was cleared on Monday of civil fraud charges that he misled
investors in the early days of the 2008 financial meltdown, in
one of the rare trials of a Wall Street leader over conduct
during the financial crisis.
A jury rejected all of the charges against Bent following a
month-long trial in U.S. District Court in Manhattan. His son,
Bruce Bent II, who also was an executive at their family-run
Reserve Management Firm, and two entities were found liable on
In losing the case against the elder Bent, the SEC failed to
get jurors to hold a major financial figure individually liable
for actions during the 2008 financial turmoil. The Reserve Fund
was the first money-market fund in the United States when Bruce
Bent started it in 1970.
The case stemmed from a sell-off by investors in the Reserve
Fund in September 2008, when the bankruptcy of Lehman Brothers
roiled financial markets and the fund "broke the buck," meaning
its net asset value fell below $1.
U.S. regulators accused the Bents of lying to investors and
fund trustees in attempts to stop a run on the fund. At the time
Lehman filed for bankruptcy, on Sept. 15, 2008, Reserve held
$785 million in Lehman debt, or 1.2 percent of the $62 billion
it had invested in its funds.
By January 2010, Reserve said it had distributed nearly all
of the $50.5 billion left in its fund after Lehman's bankruptcy.
In Monday's verdict, Bruce Bent II was cleared of knowingly
violating securities fraud laws but found liable of one count of
negligently violating those laws. The jury found that two of the
Bents' companies, Reserve Management Co Inc (RMCI) and Reserv
Partners Inc, were liable on one count of securities fraud. RMCI
was also found liable of deceiving investors.
The SEC, which sought financial penalties as part of the
case, said those findings were significant.
"Today's verdict of liability sends the message that fund
executives cannot withhold from investors and trustees key
information about their fund's vulnerability," Robert Khuzami,
the commission's director of enforcement, said in a statement.
Mark Arena, a spokesman for the Bent family, said they were
"gratified" by the verdict, but that they may appeal some of the
The regulators and the Bents failed to reach a settlement
and the case went to trial on Oct. 9 before U.S. District Judge
Paul Gardephe. Bent and his son spent a total of seven days on
The verdict came one day before the Financial Stability
Oversight Council, a council of regulators created by the 2010
Dodd-Frank Wall Street reform law, is set to convene in
Washington, D.C. to consider a proposal to regulate money market
The council is taking up the issue after SEC Chairman Mary
Schapiro failed to garner enough support for the reforms among
her fellow commissioners. Schapiro and banking regulators often
cite the run on the Reserve Fund as evidence that more needs to
be done to shore up the industry.
The case is SEC v. Reserve Management Co et al, U.S.
District Court, Southern District of New York, No. 09-cv-04346.
Follow us on Twitter @AlisonFrankel, @ReutersLegal | Like us on Facebook