The case against Bent, son Bruce Bent II and the entities they controlled was a high-profile legal challenge in a series of actions meant to hold Wall Street accountable for the 2008 financial crisis. As the Primary Reserve Fund struggled, panicked investors withdrew billions of dollars from the sector and the government intervened by temporarily guaranteeing that investors would be repaid.
In its 2009 lawsuit, filed in federal court in Manhattan, the SEC charged the Bent duo with lying to investors, trustees and credit-rating agencies, at times promising to pump money into the fund if necessary, even though they had no intention of doing so.
On Monday, each side walked away claiming victory.
The senior Bent was cleared of all the charges against him, and his son was cleared of fraud charges. But the junior Bent was found liable in one act of negligence.
“We leave the court gratified that the jury found that Bruce Bent Senior and Bruce Bent II committed no fraud,” the family said in a statement through a spokesman. “What transpired over those unprecedented 36 hours back in September 2008, following the collapse of Lehman was something we and the entire world financial market, had never experienced.”
But the jury found the entities that the Bents operated and controlled — Reserve Management Company Inc. and Reserve Partners — liable of fraud, a point that the SEC stressed in its public statement.
“Today’s verdict of liability sends the message that fund executives cannot withhold from investors and trustees key information about their fund’s vulnerability,” Robert Khuzami, the SEC’s director of enforcement, said in a statement.
The Bents said they are considering an appeal on some of the jury’s decisions.
In the course of this legal challenge, the SEC made a special motion asking the judge to distribute the $3 billion that had been withheld from distribution by the Reserve Primary Fund, and investors recouped about 99 cents on every dollar as a result.
To avoid a similar meltdown, a group of senior financial regulators called the Financial Stability Oversight Council is considering sweeping changes to the way money-market funds operate, and the group may put forward a proposal when it meets this week.
The SEC has discussed a proposal to toughen up oversight of the industry, but SEC Chairman Mary L. Schapiro abandoned the plan when it became clear that she couldn’t muster enough votes. Three of the five SEC commissioners opposed it.