Reserve Primary Fund told to pay out assets

Updated: November 25, 2009 - 8:32 PM

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NEW YORK - 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 fund has about $3.5 billion left, and U.S. District 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.

"We are pleased with the court's order adopting the SEC's distribution plan in the Reserve Primary Fund case," Securities and Exchange Commission 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 judge also said the court had no grounds to "claw back" money from investors who got full dollar-for-dollar redemptions after 8 a.m. on Sept. 15, 2008.

ASSOCIATED PRESS