The Reserve ordered to pay remaining $3.5B to investors

A federal judge on Wednesday ordered The Reserve Primary Fund, which last year roiled the $3 trillion money-market industry by "breaking the buck," to pay out its remaining assets to shareholders waiting to get their money back.
JAN 27, 2010
A federal judge on Wednesday ordered The Reserve Primary Fund, which last year roiled the $3 trillion money-market industry by "breaking the buck," to pay out its remaining assets to shareholders waiting to get their money back. The Securities and Exchange Commission said investors were likely to get back at least 99 cents on the dollar. The fund has about $3.5 billion left and U.S. District Court Judge Paul Gardephe ordered the money be distributed — minus $83.5 million set aside for legal expenses — on a "pro rata" basis, proportionate to how much each investor held in the fund. The fund, managed by New York-based Reserve Management Co., had held more than $64 billion shortly before Sept. 16, 2008, when the value of its assets fell below the level needed to cover every dollar invested in the fund, known in the industry as "breaking the buck." The fund declared $785 million it held in Lehman Brothers debt worthless after the investment bank filed for bankruptcy protection. That sank the fund's net asset value to 97 cents, leading to the fund's collapse as institutional investors demanded cash back and fund managers were forced to sell assets at steep discounts amid plunging markets. The episode was the first such investor exposure to money-market losses since 1994, and created fears about the safety of the more than $3 trillion in assets held in money-market funds that are normally considered nearly as safe as cash. "We are pleased with the court's order adopting the SEC's distribution plan in the Reserve Primary Fund case," SEC Chairman Mary Schapiro said in a statement. "It is estimated by the Reserve Fund that the amount to be returned would be 99 cents on the dollar, or more." The SEC plan approved by the court eliminates shareholder claims on the fund's assets, which the SEC said numbered more than 30. An SEC complaint filed in May accused Reserve Management and two executives of withholding key facts from investors around the time of the fund's collapse. The judge also said the court had no grounds to "claw back" money from investors who received full dollar-for-dollar redemptions after 8 a.m. on Sept. 15, 2008, in excess of what other fund shareholders who won't get full paybacks will ultimately get.

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.