As part of its plan of liquidation and distribution of assets, The New York Times recently reported that the troubled Reserve Primary Fund had told shareholders that they may get back 98.5 cents for each dollar they had in the money market fund, but if they waged legal battles against the fund and its managers, The Reserve would use shareholders’ money to defend itself.
In these turbulent times, such harsh tactics are being used by other mutual fund companies as well. A day after Lehman Brothers filed bankruptcy, the Primary Fund and two offshore funds “broke the buck,” which meant that it couldn’t repay shareholders the $1 per share price. “This seems to be the tactic that fund companies are taking these days–being a little heavy handed and getting this behind them as quickly as possible and forcing investors, if they take a reasonable deal, to maybe give up some of their rights,” says Don Phillips, managing director, corporate strategy, Research, and communications at Morningstar. Indeed, “some people will contest” such tactics, Phillips says, but for smaller investors who likely just want their cash back, they aren’t likely to consider a court battle as a “fight worth fighting.”