Ameriprise: Reserve tipped off big clients

Ameriprise Financial Inc. and its independent-broker-dealer subsidiary, Securities America Inc., Friday sued Reserve Management Corp. and its founder, Bruce Bent, alleging misconduct in the administration of its giant money market mutual fund, the Primary Fund. The suit, which was filed in federal court in Minneapolis, alleges that The Reserve gave special treatment to its largest clients just as the Primary Fund was losing value and about to “break the buck,” or dip below $1 per share. The suit claims that The Reserve last Monday “secretly notified a number of major institutional investors” in the $64 billion Primary Fund of its exposure to debt issued by Lehman Brothers Holdings Inc. That was the same day Lehman filed for bankruptcy protection. Because of the alleged “secret tip,” Ameriprise and Securities America argue in the suit that those institutional investors made requests to redeem their assets from the Primary Fund at the then-prevailing net asset value of $1 per share. The next day, Tuesday, The Reserve announced that the Primary Fund’s valued had fallen to 97 cents per share, and gave investors one hour to redeem shares and get the same price as the institutions, according to the lawsuit. Clients with Ameriprise of Minneapolis and Securities America of Omaha, Neb., have a heavy stake in the Primary Fund. According to the lawsuit, the two firms’ clients have $3.2 billion invested in the fund, representing 325,000 client accounts. And the two firms also have exposure, parking $53 million in the fund. A spokeswoman for The Reserve, which is based in New York, did not return a call to comment.