SEC Seeks ‘Clawback’ Against Investors in Money Market Fund

Last year, the Reserve Primary Fund made headlines when the money-market fund "broke the buck" on Sept. 16, 2008, after suffering losses on Lehman Brothers Holdings Inc. debt.

Now it is in the news again as a federal judge in New York mulls a plan by the U.S. Securities and Exchange Commission to file "clawback" litigation against investors the federal agency deems to have taken excessive payouts before the money-market fund stopped making redemptions last year, reports Bloomberg. The payouts at issue were taken after 8 a.m. on Sept. 15, 2008.

Ordinarily, such efforts to claw back excessive profits from individual investors in order to redistribute them to a larger group involve riskier products than money-market funds. Oral arguments were heard today by U.S. District Judge Paul Gardephe, as some institutional investors opposed the SEC's redistribution plan, according to the news agency.

The SEC says the net asset value of the Reserve Primary Fund should be 99 cents. It filed suit against Reserve Primary in May, contending that the money market fund provided misleading information to investors about the fund's safety.

Related coverage:

Associated Press: "Fallen Money-Market Fund Makes $1B Distribution"

Updated at 5:53 p.m. to link to subsequent Associated Press article.