The Securities and Exchange Commission (SEC) alleged that Chairman Bruce Bent Sr. and vice chairman and president Bruce Bent II failed “to provide key material facts to investors and trustees about the fund’s vulnerability as Lehman Brothers Holdings, Inc. sought bankruptcy protection” and as the $60-billion fund “broke the buck” when the value of its assets fell to $0.97 per invested dollar last fall.

“As we alleged in our complaint, the fund’s managers turned a blind eye to investors and the reality of the situation at hand before the fund broke the buck last September,” said SEC Chairman Mary L. Schapiro, in an SEC statement.

In December, the staff of the SEC’s Division of Enforcement informed counsel to Reserve Management Company, Inc., of its intent to recommend that the SEC charge the firm with violations of certain provisions of federal securities laws (see “Reserve Management Could Face SEC Charges“).

The SEC alleged, in its complaint filed in federal court in Manhattan, that Reserve Management and the executives misrepresented when the company would provide the credit needed to protect the net asset value of the fund when it never intended to do that.The agency also said the company “significantly understated” the investor requests to withdraw from the fund and failed to provide the fund’s trustees with accurate information on the value of Lehman securities.

The SEC is seeking unspecified civil fines and restitution from Reserve Management and the two executives, as well as to expedite the distribution of the Primary Fund’s remaining assets to investors, and that the court release a significant amount of money that is currently being withheld from investors pending the outcome of numerous lawsuits against the fund, the trustees and other officers and directors of the Reserve entities. After the latest $2.3 billion distribution announced April 17, about $46 billion, or about 90% of fund assets, had been returned to investors, the company said last month.

After Lehman Brothers filed for bankruptcy protection on September 15, Reserve Management board declared its $785 million investment in the investment bank’s debt worthless. That triggered a rush of orders from institutional clients to pull money out, gutting the fund’s value as its managers were forced to sell assets amid sharply declining markets.

On September 16 Reserve Management announced the Primary Fund had “broken the buck” (see “Reserve Primary Fund Promises $20B in Shareholder Repayments“). The Treasury Department stepped in with a temporary program to guarantee money-market funds, but the Primary Fund didn’t qualify and had to liquidate (see “Treasury Extends Money-Market Guarantee Program“).

Reserve Management has been charged by Ameriprise Financial of tipping off certain institutional investors of its Lehman Brothers investment prior to its Primary Fund shares dropping to below $1 in value (see “Lawsuits Spring up from Lehman Brothers Fall’).