The evening of Sept. 15, 2008, was the worst of Bruce Bent IIs career. Panicked investors, who woke up that Monday morning to news of Lehman Brothers bankruptcy, had yanked billions of dollars out of the money-market fund Mr. Bent ran with his father, money-market fund inventor Bruce Bent Sr. The business the Bent family had dedicated their lives to, Reserve Management Co., faced disaster if the run on their fund continued.
As the younger Mr. Bent, Reserves president, sifted through his e-mails, he reviewed a statement drafted by his marketing staff to calm investors. The final line proclaimed that Reserve was confident in the underlying credit strength and quality of its holdings, which included hundreds of millions in debt from Lehman and other free-falling institutions, including Washington Mutual and Merrill Lynch.
Drop the last line, he directed, and then go with it.
Unfortunately, this editing job represented one of the few times Mr. Bent or his father, the chairman of Reserve, were honest with shareholders in the three terrible days their firm spiraled downward, according to regulators.
The Securities and Exchange Commission last week charged the Bents and Reserve with fraud, alleging that they failed to provide key information to customers, board members and credit-rating agencies after Lehman collapsed. Reserve and the Bents said they would support the $1-per-share asset value of their fund when in fact there was no such intention, the SEC contends. The agency also charges that Reserve misled directors and credit raters by significantly understating how many investors were yanking money after the Lehman bankruptcy hit.