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Judge considers SEC plan to claw back Reserve fund payouts Print E-mail
Thursday, 24 September 2009

By Matthew Quinn

For the investors out there that think they escaped catastrophe the day the $62 billion Reserve Primary money-market fund broke the buck, the Securities and Exchange Commission wants you to think again.

The regulator made some headway on its plan to file clawback suits against investors whose payouts from the Reserve it thinks were excessive, Bloomberg reported Wednesday.

U.S. District Judge Paul Gardephe in New York said he’ll consider the SEC’s plan to sue investors who withdrew money from the fund before it cut off redemptions. The SEC says investors are only entitled to 99 cents on the dollar because the fund didn’t have enough cash to make every investor whole.

More than $10 billion was redeemed from the fund following the bankruptcy of Lehman Brothers on Sept. 15, 2008. The fund was forced to write down its $785 million in Lehman Brothers commercial paper and medium-term notes to zero, pushing its net asset value below $1, a fact it did not disclose until Sept. 16, 2008.

The SEC sued managers of the fund in May, accusing them of misleading investors about the fund’s safety.

The SEC wants to claw back any redemptions paid after 8 a.m. on Sept. 15, 2008, that exceeded 99 cents for every $1 invested in the fund.

Opponents of the SEC’s distribution plan include Time Warner, and the state of Massachusetts, which objects to the potential clawback suits, Bloomberg said.

Time Warner had $820 million invested in the Reserve fund, which it attempted to redeem on Sept. 15, 2008 but did not receive.

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