The Reserve Primary Fund, the money market fund that “broke the buck” and quickly became a defendant in numerous securities class actions, has presented its litigious shareholders with a choice: be patient and perhaps receive 98.5 cents for each dollar they had in the money market fund; or continue with their lawsuits against the fund and its managers, in which case the company says it will use investors’ own money to defend itself against their accusations of mismanagement and deception.
The NY Times reports that this “painful dilemma” means that if shareholders fight for more than 98.5 cents, they risk getting far less, because more of their money will be used to pay the fund’s legal expenses. Those terms were described in a “plan of liquidation” posted on the Reserve Fund’s Web site late Wednesday, and are part of the contract that fund trustees negotiated with the money manager that has been running the fund since its inception more than 30 years ago.
Tamar Frankel, a law professor at Boston University, stated that “This is a very smart thing they have done.” “It pours not only ice water but ice on any claims” by shareholders, she added.
She added that if the fund’s manager or trustees are to blame for the fund’s current troubles, she is very skeptical that they will be allowed to tap shareholder money for the legal bills.
