(
)
(
)
The Securities and Exchange Commission yesterday suffered yet another defeat in its efforts to hold Wall Street accountable for losses stemming from the financial meltdown after a Manhattan jury cleared a father-son team of misleading investors to avoid a run on the bank in 2008.
After more than two days of deliberations, a seven-person jury cleared Bruce Bent Sr. and Bruce Bent II, the former managers of the $62 billion Reserve Primary fund, of all but one claim against them.
The younger Bent was held liable on one claim of negligence — but cleared on six other claims. Bent Sr., who is often credited as the father of the money-market mutual fund, was cleared of all four claims, including knowingly and recklessly breaking securities laws.
“We are very pleased that my father and I have been completely cleared of any fraud whatsoever,” Bent II told Bloomberg News after the verdict.
The SEC sued the Bents in 2009 after the Reserve Primary money-market mutual fund “broke the buck” in 2008 — marking the first time in 14 years that a fund failed to maintain a per-share value of $1.
The SEC accused the father-son team of misleading investors about its ability to cover for losses tied to some $785 million in Lehman debt when the brokerage firm went bankrupt.
Their failure to come up with the money caused a run on the fund as well as other money-market funds, forcing the government to promise to backstop losses.
The Bents’ defense team argued that the father-son team fully intended to use money from the firm, Reserve Management Co., to make the fund whole. They were unable to do it only because capital dried up.
“You can’t disclose something if you can’t foresee it,” the Bents’ lead defense attorney John Dellaportas said in his closing arguments.
Bent II, who spent five days on the stand, said the firm had received bids of as high as $625 million as recently as January, leading him to believe he could easily raise the money needed to cover the shortfall.
Bent Sr. had left for a vacation to Italy the Saturday before Lehman’s bankruptcy, leaving his son to scramble for a rescue plan. On Sept. 15, he had sent an e-mail to the firm’s sales team telling them to assure customers the fund was safe.
Despite the verdict, Robert Khuzami, the SEC’s Director of Enforcement, called the verdict a victory for the SEC.
Nearly three years ago to the day, Ralph Cioffi and Matthew Tannin, who ran a Bear Stearns hedge fund that collapsed, were acquitted of SEC fraud charges that they lied to investors about the risks of the impending housing collapse on the fund.
In July, a Citigroup executive was cleared of misleading investors about the bank’s bets against a $1 billion mortgage-bond deal it sold leading up to the housing crisis.
Thomas Gorman, a former SEC official, said the verdict “should be seen as a significant loss for the SEC.”