trial continued this afternoon with a half-day of testimony from John Drahzal
, who was Reserve Management Company's
global head of sales during the financial crisis of 2008 when the Reserve Primary Fund
broke the buck.
To read the full, continuing saga of the collapse of the Reserve Primary Fund and the ensuing legal battle, see MFWire's living timeline.
Drahzal testified that he received an e-mail from Bruce Bent II just after 1 P.M. on September 15, 2008, the day Lehman Brothers filed for bankruptcy, saying that Reserve Management Company intended to protect the NAV of the fund. He also testified that he took the e-mail from Bent II to mean that "we had unqualified support for the fund," and that he could share this intention with investors.
The e-mail, which Drahzal shared with his sales force, did note that the deal hadn't been formally approved by the SEC.
Drahzal then conveyed this message to investors. He said the news that the company intended to protect the NAV was met positively, as one might think.
Later, Drahzal testified that Bruce Bent II
came up with the idea to make an offer to investors to cancel any redemptions that had come up throughout the day, an idea Drahzal wasn't sure was "allowed." After consulting with counsel, a few calls were made in an attempt to convince clients to cancel their redemptions.
Drahzal also discussed the "Reserve Insights" document, which detailed the plan to protect the NAV
and was posted to the Reserve Management Company website sometime on the 15th. Drahzal shared it with clients, but it was eventually removed from the web.
Drahzal described receiving, around 4 P.M. on Tuesday, September 16, the "devastating" news that the fund would break the buck. He said when he shared this news with his team, he was met with "stunned silence."
In cross-examination, defense council focused on what exactly Bent II communicated to Drahzal. The defense attorney contested that Bent never intended for the sales team to tell investors that a deal was in place for sure to protect the fund, only that Reserve intended to protect the NAV.
Furthermore, the defense showed an e-mail to Drahzal from Reserve Management Company's lead counsel saying the intention to protect the NAV was only to be shared with customers as asked. Drahzel did not recall the e-mail.
The trial continues tomorrow morning with testimony from Patrick Ledford
, who was the chief investment officer at Reserve.
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