Bruce R. Bent II, president of the $62.5 billion Reserve Primary Fund, which failed during the financial crisis, has agreed to settle a shareholder lawsuit in an accord worth about $54.9 million.
Mr. Bent and his father are among the defendants who agreed to pay $10 million in cash, drop their claim for $42.4 million from a court-established expense fund and allow $2.5 million from the expense fund to go to shareholders. None of the defendants admitted wrongdoing as part of the proposed settlement to end a class action led by Third Avenue Institutional International Value Fund LP.
The suit was filed in September 2008, two days after Lehman Brothers Holdings Inc. went bankrupt amid the worst U.S. economic crisis since the Great Depression.
The Reserve money market fund held $785 million in Lehman debt. A run on the fund triggered its failure when it “broke the buck” by failing to maintain a $1-a-share net asset value.
A federal jury found Bruce Bent II negligent on one claim of violating a securities law. His father was absolved of all claims in a suit by the Securities and Exchange Commission.
The fund's closure sparked an investor run on other money funds eligible to buy corporate debt. As they scrambled to sell holdings to meet redemptions, global credit markets froze.
The panic abated after the Treasury Department guaranteed money fund shareholders against default for a year and the Federal Reserve began financing the purchase of fund holdings at face value.
The settlement is subject to court approval.