Collapsed fund to disburse $1b to investors

September 24, 2009|Associated Press

A money-market mutual fund that held more than $60 billion before it notoriously “broke the buck’’ a year ago said yesterday it will hand out $1 billion in a fifth distribution to investors from the fund’s remaining assets.

The distribution, the smallest of five since the Reserve Primary Fund’s collapse, will be made about Oct. 2, said Reserve Management Co., the New York firm that ran the fund. After the payout, the fund will hold about $3.5 billion. The final distribution and its timing are tied up in a civil fraud case brought by the Securities and Exchange Commission against Reserve and its two top executives.

Yesterday, US District Judge Paul Gardephe in Manhattan said he was inclined to set a Dec. 23 deadline by which the bulk of the remaining assets must be distributed to shareholders.

The fund had held more than $64 billion just before Sept. 16, 2008, when its net asset value fell below the $1 level needed to ensure investors a dollar-for-dollar return of their principal. The fund declared $785 million that it held in Lehman Brothers debt worthless after the investment bank’s bankruptcy filing. That sank the fund’s net asset value to 97 cents; institutional investors demanded cash back and fund managers were forced to sell assets at steep discounts amid plunging markets.

That created fears about the safety of $3 trillion in assets held in money-market funds.

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