In mid-September, Reserve Management Co. was the subject of numerous lawsuits (discussed here) after its Primary Fund became the first money-market mutual fund to ever expose retail clients to losses by “breaking the buck.” Although not guaranteed, money-market mutual funds shares historically remain at $1.00 per share.
The Primary Fund and others funds of Reserve Management froze withdrawals for approximately six weeks after the “breaking the buck” episode caused turmoil among its investors. On Friday of last week, Reserve finally mailed out checks to shareholders of the giant Primary Fund. The NY Times reports that that Reserve returned half their original stake and promised substantial future payments as more portfolio assets are sold.
The NY Times article notes that the SEC is now in the position of having to choose sides in a battle between two groups of Primary Fund investors, one of which includes an investment arm of the Chinese government:
That choice will determine how big those final checks will be and how big a loss shareholders will ultimately incur, at least until the courts work through the growing docket of lawsuits facing the fund and its managers.
On one side of the S.E.C. fight are the lawyers for shareholders who submitted redemption orders after the fund “broke the buck” on Sept. 16, reporting a per-share value below a dollar — 97 cents, to be exact. That team is urging that all shareholders who submitted redemption orders anytime during or after the week of Sept. 15 share equally in the liquidation proceeds.
The other legal team represents investors who applied to withdraw their money on Monday, Sept. 15, when the fund was still posting a price of a dollar a share, but who did not actually get paid before redemptions were suspended.
Among those “Monday shareholders” is the Stable Investment Corporation, a subsidiary of the state-sponsored China Investment Corporation, which has more than $5 billion frozen in the fund.
The checks mailed on Friday totaled $26 billion. 17 other Reserve money funds remain frozen, including its large US Government fund.
