A rare voice in favor of money-market fund reforms has surfaced. Michael Hiltzik praises SEC
Chairman Mary Schapiro's
efforts to reform the money-market industry in a column for the Los Angeles Times
, and even drawing on references to Battlestar Galactian Cylons to make his point.
For the full story on the lawsuit so far and the death of the Primary Fund, see MFWire's timeline.
Buried within the story is reference to a federal fraud trial set for Oct. 1
. That trial is based on the one fund that has "broken the buck" in recent years, i.e. American's very first money-market fund, the $62-billion Reserve Primary Fund. Immediately after Lehman Bros. filed for bankruptcy in September 2008, Investors staged a run on the fund — which contained $785 million in Lehman Bros. debt. — and sank it. Though investors got 99 cents on the dollar of what was left after the blowup, they had to wait as long as 15 months to get that recovery. The SEC brought fraud charges
against Reserve chairman Bruce Bent Sr.; president/vice chairman Bruce Bent II; and Reserve Management Company and their distributor, Resrv Partners on May 5, 2009.
As regards the money-market industry as a whole, Hiltzik writes that the weaknesses of money-market funds includes "fictional" $1 NAVs, as well as the fact that the industry lacks the safeguards to prevent another "2008-style run" on funds. As for the call for "conclusive proof" to support Schapiro's new "risky and disruptive changes" from industry insiders like SEC commissioner Paul Atkins
, Hiltzik said just look back at history.
"What [history] shows, conclusively, is that when regulatory reforms are passed through the regulated industry's lobbying wringer, they always end up being insufficient," Hiltzik says. "Now that the money funds have had their say, the SEC should do the right thing, and ignore them."
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