<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By James Greiff</p> <p>Chalk up another face plant for the federal government in its quest to imprison, sue, fine, penalize or generally hold anyone of note accountable for their actions during the financial crisis.</p> <p>The latest case involves the father-son team of Bruce Bent Sr. and Bruce Bent II, the former managers of the Reserve Primary Fund, a defunct money-market mutual fund that played a crucial part in spreading panic throughout the markets in the days after Lehman Brothers Holdings Inc. failed. The pair was cleared by a jury of civil intentional fraud charges, the most serious accusations. The younger Bent was dinged, though, and <a href="http://www.bloomberg.com/news/2012-11-12/reserve-fund-jury-finds-one-bent-liable-absolves-another-1-.html">found liable</a> for the lesser accusation of negligence.</p> <p>The Securities and Exchange Commission sued the Bents in 2009, claiming they promised investors that they would prop up their $62 billion fund, which held about $785 million in short-term Lehman debt. When Lehman filed for bankruptcy on Sept. 15, 2008, the shares of Reserve Primary lost about 3 cents of their value within a day. That meant the fund couldn't make good on its promise of repaying all shareholders $1 for each dollar invested. In other words, it "broke the buck."</p> <p>Investors raced to withdraw their money before Reserve Primary ran out of cash, which in turn touched off mass withdrawals at other money-market mutual funds. The run was ended when the federal government offered a backstop.</p> <p>The SEC claimed the Bents knew their fund couldn't be saved, yet had misled investors by saying they stood ready to use their own money to establish a facility to provide enough cash to meet redemptions. They did this, according to the SEC's complaint, to attempt to persuade investors not to withdraw their money.</p> <p>Lawyers for the Bents argued that the pair faced a "<a href="http://www.bloomberg.com/news/2012-11-07/reserve-fund-meltdown-said-like-hurricane-sandy-by-lawyer.html">perfect storm</a>" and that their efforts were in good faith, even if they proved fruitless. The Primary Reserve Fund, co-founded by the elder Bent in 1970, was the first money-market fund. It has since liquidated.</p> <p>Investigators and prosecutors have successfully sued or prosecuted a number of no-name mortgage brokers and bankers in the financial crisis, and many big banks have paid billions in fines. But cases involving high-profile individuals have gone nowhere.</p> <p>The most prominent failure was the trial of former Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin. Federal prosecutors accused the pair of criminal conspiracy and securities fraud, and tried to piece together a case that relied mainly on excerpts of e-mails that purported to show the pair knew their funds were doomed, but withheld this information from investors. A jury concluded that when viewed in their entirety, the e-mails were ambiguous.</p> <p>Cioffi and Tannin later settled civil claims by the SEC, paying a penalty of $1.05 million. Of course, as in almost all matters involving SEC litigation, they neither denied nor admitted wrongdoing.</p> <p>(James Greiff is a member of Bloomberg View’s editorial board.)</p> <p>Read more breaking commentary from Bloomberg View columnists and editors at the <a href="http://www.bloomberg.com/view/the-ticker/">Ticker</a>.</p> </body> </html>