Someday, when the Encyclopedia of Wall Street Chutzpah is finally published, it will no doubt contain a lengthy entry about the Bents, the father-and-son team who are now trying to stick their money-market-fund customers with the bill after steering their investment company over the cliffÂand nearly taking the global financial system with themÂtwo years ago this week.
The Bents, as students of the 2008 financial crisis will recall, ran an enormous $62 billion money-market fund called the Reserve Primary Fund, which â€œbroke the buckâ€ after Lehman Brothers filed for bankruptcy. The fund’s net asset value fell below the sacrosanct $1 a share because it held $785 million of Lehman debt that immediately had to be written down to zero. That is never supposed to happen at an ultra-secure money-market fund, so a full-scale panic was triggered throughout the financial world, forcing the U.S. government to guarantee all of the $3.7 trillion parked in money-market funds.
Way to go, Bents! In May 2009, the Securities and Exchange Commission sued Reserve Management Co.’s chief executive, Bruce Bent, and his son, President Bruce Bent II, alleging that they hid key information from customers and board members in the hours after the Lehman bankruptcy to stem a flood of redemptions (see â€œInside the panic at Reserve Fund,â€ May 11, 2009). More than a year later, the Bents still haven’t settled the suit, even though the SEC rarely requires an admission of wrongdoing from anyone it charges. In fact, the unbending Bents told a federal judge last month that negotiations with the SEC have hit an impasse, and they’re preparing for a civil trial.
Now for the chutzpah part.
As their legal costs pile up, the Bents are asking ReserveÂwhose name was changed to Double Rock Corp. after the buck-breaking debacleÂto help pay their bills. The Bents claim that they are owed $32.5 million in unpaid fund-management fees accrued since September 2008 and seek another $13 million from their company to help cover legal costs. (A federal judge ruled last year that the Bents needed court approval to draw from a company-backed fund that covers Reserve-related expenses.)
The Bents can likely afford to pay their own bills. A 2008 prospectus shows that Reserve charged a median management fee equal to 0.46% of assets, which suggests that the Primary Fund and other Bent-owned investment vehicles were on pace to collect about $400 million in annual fees before the market crash. And remember, the Bents have run Reserve since pioneering the money-market fund in 1971.
It isn’t clear what the Bents did with all of their money. But we do know that the younger Mr. Bent bought an enormous West Village penthouse apartment that he attempted to sell last year for $16.5 million. He has since taken the apartment off the market, according to Tracy Shepherd, a real estate agent at Tungsten Property.
Despite their apparent wealth, the Bents are insisting that it’s unfair for them to cover their own legal expenses: â€œForcing defendants to continue to litigate and incur ever-mounting unreimbursed defense costs … is manifestly unjust and highly prejudicial,â€ their lawyers at Dewey & LeBoeuf stated in a legal filing last month.
Christopher Clark, a lawyer for the Bents, didn’t return calls.
The SEC shot back earlier this month with a motion urging the judge to reject the Bents’ request, arguing that the family should be paid no management fees until the case is resolved. â€œDefendants do not claim indigence,â€ the SEC said. â€œThey simply claim the right to fund their defense with investor money.â€