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U.S. Securities and Exchange Commission

Statement by Chairman Schapiro on Court Order Adopting SEC's Proposed Distribution Plan in Reserve Primary Fund Case


Washington, D.C., Nov. 25, 2009 — SEC Chairman Mary L. Schapiro today made the following statement:

"We are pleased with the court's order adopting the SEC's distribution plan in the Reserve Primary Fund case. From the start, our goal was to return money to investors as quickly and fairly as possible and to avoid the extended quagmire of litigation that would have only served to deplete the finite pool of money used to pay investors.

"With this goal in mind, the SEC took the lead in proposing a just and equitable resolution and forging a consensus among the vast majority of investors who recognized the benefits of resolving this matter amicably.

"The proposal by the SEC advocated a pro-rata distribution plan that provides an equal payout to all shareholders who have not had their redemption requests fulfilled, regardless of when they submitted those redemption requests. It is estimated by the Reserve Fund that the amount to be returned would be 99 cents on the dollar, or more.

"Without this distribution plan, shareholders would have been racing to obtain judgments against the finite pool of funds, possibly leading to conflicting judgments by different courts and tapping into a $3.5 billion pot that had been set aside by the Fund to cover litigation costs. In fact, approximately 30 lawsuits already had been filed across the country at the time we proposed our plan. The SEC plan approved by the court eliminates these claims on the remaining assets, freeing up money to be returned to investors.

"Today’s ruling affirms our approach and should enable all investors to get back their money quickly."


On September 15, 2008, the Reserve Primary Fund, which held $785 million in Lehman-issued securities, became illiquid when the fund was unable to meet investor requests for redemptions. The following day, the Reserve Fund declared it had "broken the buck" because its net asset value had fallen below $1 per share.

Additional Materials

On May 5, 2009, the SEC filed fraud charges against several entities and individuals who operate the Reserve Fund for failing to provide key material facts to, and affirmatively misleading, investors and trustees about the fund's vulnerability as Lehman Brothers Holdings, Inc. sought bankruptcy protection. More significantly, in bringing the enforcement action, the SEC sought to expedite the distribution of the fund's remaining assets to investors by proposing a plan of liquidation.

In its complaint, the agency asked the court to enter an order compelling a pro rata distribution of remaining fund assets, which would release money that is currently being withheld from investors pending the outcome of approximately 30 lawsuits against the Reserve Fund, the trustees and other officers and directors of the Reserve entities.

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Modified: 11/27/2009