In about four minutes, Bruce Bent II stepped from trying to bail out the flagship money-market fund of Reserve Management Co. to committing fraud, according to a complaint filed by Massachusetts regulators, Bloomberg reported.
Around 1:15 p.m. on Sept. 15, Bent, president of New York- based Reserve Management, talked with the U.S. Securities and Exchange Commission about propping up the Reserve Primary Fund. The $62.6 billion fund was close to collapse because of investments in debt issued by Lehman Brothers Holdings Inc., which hours earlier had filed for bankruptcy.
At 1:19 p.m., when that conversation ended, Bent sent an e- mail to Reserve executives that said SEC approval for a bailout was imminent, the state said in the filing. No such plan was in place. Still, the message spread, with salespeople using it to persuade investors not to abandon the fund, the complaint said.
The next day, Reserve Primary became only the second money fund to break the buck, or fall below the $1-a-share price paid by investors, triggering an industrywide run that helped freeze global credit markets.
"It was like a body blow," John Drahzal, global head of sales for Reserve Management, told Massachusetts investigators. "We told people we were going to protect" the value of their shares, he said.
Bent showed "a brazen disregard for the truth in an attempt to keep investors from fleeing the Primary Fund," Massachusetts Secretary of the Commonwealth William F. Galvin said in the Jan. 13 filing.