Bruce Bent and his team now face legal action from at least two states, as well as some private companies. The Wall Street Journal's Steve Stecklow reports that Massachusetts Secretary of the Commonwealth William F. Galvin, who seems to be trying to build a reputation as the next Eliot Spitzer, filed an administrative complaint against Reserve Management for allegedly telling Primary Fund shareholders everything was just peachy, even as they knew that the Lehman Brothers bankruptcy was about to hit them hard.

A spokeswoman for Reserve told MFWire that the firm is "currently reviewing" the complaint, and she declined to comment further.

Galvin's complaint claims that Reserve gave rosy reports to fund shareholders on September 15 and 16, saying the Lehman debt holdings in Primary were still holding at par, even as the fund's board valued them at 80 cents on the dollar. By Tuesday at 4pm, Reserve valued those $785 million in debt securities at zero and within a short while, the fund broke the buck (see MFWire, 9/17/2008).

Also, in an echo of the suit filed in September by Ameriprise (see MFWire, 9/22/2008), Galvin accuses Reserve of prioritizing large clients' redemptions over similar requests from smaller clients.

Altogether, Galvin's complaint seeks restitution for Primary Fund shareholders in Massachusetts, censure and a fine.

Galvin isn't the only state regulator after Bent, either. A week ago, Colorado securities commissioner Fred Joseph filed a lawsuit against Reserve over the distribution process, still ongoing, for the Primary Fund (see MFWire, 1/7/2009). 

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