Bruce Bent didn’t just invent the money-market fund, he was the industry’s major proponent of caution, said Steve Stecklow and Diya Gullapalli in The Wall Street Journal. The 71-year-old CEO of Reserve Management “preached a principle of extremely cautious investing,” buying only ultra-safe Treasury securities and bank CDs, and shunning the higher-yielding commercial paper, or short-term corporate IOUs, favored by other funds.
So investors were shocked when Bent’s biggest fund, Reserve Primary, announced that it couldn’t maintain its per-share price of $1, a big no-no for a money fund. The reason: It held $785 million in commercial paper issued by bankrupt Lehman Brothers. “He kept ranting about the rest of the industry’s bad behavior while he was the one who let his guard down,” says Don Phillips of rating firm Morningstar. Bent and Reserve Management now face dozens of lawsuits.