This morning prosecutors grilled Bruce Bent II
on what happened at Reserve Management Company
on Monday, September 15, 2008, the day its flagship money fund broke the buck. Repeatedly halting and asking the pros to rephrase or clarify his questions, Bent told the jurors at New York's Southern District Federal Courthouse in Manhattan about his efforts to secure emergency credit for the Reserve Primary Fund
, which faced redemptions of a quarter of its AUM the day Lehman Brothers filed for bankruptcy.
To read about the ongoing saga of Reserve and its legal battles since the collapse of the Primary Fund, see our living timeline.
"I got the number of Tim Geithner from one of our attorneys," Bent said, adding that he left "a few messages" for the then-chairman of the New York Fed but did not receive a reply.
Bent II's father, Bruce Bent Sr.
, who finished his testimony earlier on Monday, had left on a vaction to Italy the day before Lehman collapsed. This left Bent II in charge at RMC on the day the Primary fund broke the buck.
Bent II disputed the prosecution's assertion that he had authorized the fund's sales team to tell the public that the RMC would enter into a credit support agreement to support the fund's $1 NAV. When prosecutors showed Bent quotes from an earlier deposition in which he acknowledged that he had authorized such communication, Bent demurred.
"I didn't draw the distinction that I do now between the public and everybody else," Bent said.
Bent said that calls for redemptions started coming in on the Sunday, September 14, 2008, the day before Lehman filed for bankruptcy, and Reserve was concerned that redemptions could be as high as $5 billion, from the fund's AUM of $62.5 billion. By 1pm on Monday, redemptions had reached $16.5 billion, and the fund's $785 million of Lehman holdings had been written down by 80 percent.
The SEC's prosecutor suggested that Bent knew that the fund was in danger of breaking the buck, but Bent said he didn't calculate that with the writedown and the redemptions, the fund was about to fall below $1 NAV.
"I understood the general concept of the pricing of the underlying securities and breaking the buck," said Bent, but "I wasn't doing further calculations in my head."
He added, "My father's faster with all of that stuff than I am."
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