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Judge Seeks To Return Reserve Primary Fund Assets Quickly
Last update: 9/23/2009 5:08:39 PM
By Daisy Maxey
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--A federal judge indicated he wants to move quickly to return remaining assets in the Reserve Primary Fund to its shareholders, the same day that the fund said it plans a $1 billion distribution to shareholders.
The distribution, set for on or about Oct. 2, will be the fifth to the Primary Fund's shareholders since the once-$63 billion money-market fund reported losses last year as a result of its stake in Lehman Brothers Holdings Inc. (LEHMQ), sparking redemptions and fear across the money-market fund industry.
The pro-rata payout to investors represents about 22% of the fund's remaining asset value of $4.5 billion. Included in the remaining $4.5 billion is about $3.5 billion that will remain in the fund and includes its stake in Lehman Brothers securities, which is valued at zero. That money is being held in a special reserve to be used for costs and expenses, including legal and accounting fees, pending or threatened claims against it, its officers and trustees, and claims that could be made against its assets.
Meanwhile, Paul Gardephe, the federal judge considering the Securities and Exchange Commission's distribution plan in the U.S. District Court for the Southern District of New York, indicated his ambitious goal is to set a deadline of Dec. 23 to get the bulk of the money still in the fund back to shareholders, sources who attended Wednesday's two-and-a-half-hour hearing said.
The judge is expected to issue an order as early as today directing the SEC to file a final order for its distribution plan, and to suggest a monitor to oversee the liquidation, sources said.
Gardephe indicated he would order further briefs within 10 days on whether a "claw back," which would take some assets back from investors who got out of the fund before it shut off redemptions, will be considered, according to the sources.
The SEC's plan would appoint a monitor to liquidate and distribute the fund's assets on a pro-rata basis, investigate the grounds for a "claw back" and look into the circumstances surrounding some transfers by shareholders to other funds as Primary Fund ran into trouble, among other duties. Under that plan, the monitor would have 90 days to consider the claw back issue, but sources said the judge appears to want to settle the matter more quickly.
Top securities regulators in Massachusetts have opposed the SEC's plan because of the possibility of a claw back, which they say would be unfair to investors who were able to redeem. However, some significant investors in the fund are in favor of a clawback, sources say.
Under the SEC's plan, Primary Fund investors would be expected to receive 99 cents on the dollar.
After the distribution now set early October is made, the fund will have returned to investors about 92% of the assets it held as of the close of business on Sept. 15, 2008. On Sept. 16, 2008 the fund's net asset value dipped below the $1 per share money-market funds strive to maintain.
The planned distribution will represent principal only, and income accrued after Sept. 14, 2008 is addressed in the fund's liquidation plan.
If the judge approves the SEC's distribution proposal for the Primary Fund, which its trustees support, it would settle the lion's share of the liquidation, though some would continue, and likely result in assets being returned to investors relatively quickly. If he doesn't approve the plan, the fund will likely continue to be mired in litigation.
In a May 5 complaint, the SEC charged Reserve Management; Bruce Bent Sr., the founder of the Primary Fund; and his son, Bruce Bent II; among others, with fraud relating to their actions in regard to the Primary Fund. That complaint will continue regardless of what happens with the SEC's distribution plan.
The defendants have made a motion to dismiss that complaint, and the SEC has responded.
By Daisy Maxey; Dow Jones Newswires; 212-416-2237; daisy.maxey@dowjones.com
(END) Dow Jones Newswires
September 23, 2009 17:08 ET (21:08 GMT)
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