The Bents' fraud trial took a turn this morning during the testimony of Patrick Ledford, the former CIO of Reserve Management Company [profile].

To read the full, continuing saga of the collapse of the Reserve Primary Fund and the ensuing legal battle, see MFWire's living timeline.

Ledford's testimony focused on what he told the ratings agencies during the reserve primaries funds final days — whether he made what the Bents' attorney called "unauthorized" and "untrue" statements, without his bosses' orders.

On Sept. 15, 2008, with Lehman in bankruptcy, Ledford testified that he needed to sell securities to raise the approximately $15 billion of redemptions that came into the fund before lunchtime. He was able to sell about $1 billion of securities, which, along with $3 billion in maturities, left the fund over $10 billion "in the hole," in his words.

"This could be this kiss of death for us," Ledford is heard telling a colleague that afternoon on a recorded telephone call played today for the jury.

Yet when he spoke that afternoon with Moodys' senior vice president Henry Schilling, his contact at the ratings agency, Ledford appeared to confirm that the fund had been able to raise the needed money.

"It's not a liquid market by any means, but we were able to get it done," Ledford is heard telling Schilling on a recorded conversation. "We sold product in the street ... It was difficult to get things done, but we did."

The defense attorney suggested that Ledford had made these statements, which she called "untrue," without the Bents' authorization.

Ledford responded that he had based these statements on "incorrect information" due to the "chaotic" state of the market.

Ledford's communications to the ratings agencies did not end there. He testified that he had the Reserve's marketing department mail to Moodys' Schilling and Ruth Shaw, Ledford's contact at Standard & Poor's, the "Reserve Insights" document, a much-discussed marketing brochure sent to skittish investors that read, in part, "Furthermore, our support agreements ensure the integrity of a $1.00 NAV."

The SEC's prosecutor, meanwhile, tried to show that Ledford was taking his cues from the top. The prosecution played a recording of a phone call between Ledford and Reserve's then-marketing head in which Ledford asked if the "Reserve Insights" piece had been approved to be sent to the agencies. Yes, the marketing head responded, the piece had been approved.

"Mr. Bent called in and approved it as well," he said -- a statement apparently at odds with Bent II's testimony earlier in the trial.

Prosecutors also played a recorded phone call between Ledford and Bruce Bent Sr. in which the elder Bent, then vacation in Italy, asks, "No more scuttlebutt? No more useless gossip?", and Ledford responds that he has sent news of the "CSA" — the abortive credit support agreement meant to save the fund — to Moodys and S&P, "so they're all set, at least fat and happy tonight."

The defense's cross examination was, at times, more contentious. The attorney recalled Ledford's unwillingness to speak with her before the trial, noting that he had cooperated with the SEC's attorneys. Ledford said that he could not recall this.

"You don't remember hanging up on me? You don't remember slamming the phone down?" the defense attorney asked.

"No, I do not," he replied.

The defense attorney sought to show that Ledford had ignored Bent II's request that he not speak with the ratings agencies, and showed a transcript of a call in which Bent II told Ledford "Please don't relay anything to them [i.e., S&P]" until after Bent II consulted with the SEC and the fund's board.

Finally, Ledford testified that he called Bent II on the evening of September 15 to tell him he had done a good job steering Reserve Management Company through the financial crisis. 

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