The Massachusetts Securities Division on January 13 charged Reserve Management Company with making numerous false and misleading statements to investors in attempts to dissuade them from redeeming shares in the company’s Primary Fund, which “broke the buck” a day after Lehman Brothers filed for bankruptcy.
According to the complaint, Reserve’s Primary Fund held Lehman commercial paper and floating-rate notes, which comprised 1.2% of the Primary Fund’s holdings as of September 15, 2008, or about $785 million. That same morning, anxious investors flooded Reserve Management with inquiries about the potential impact of its Lehman holdings on the NAV of the Primary Fund. To calm investors, sales personnel of Reserve Management, at the direction of senior management, made statements and distributed materials that “contained outright falsities which the principals of Reserve Management knew at the time were not true,” the complaint states.