A new wrinkle in money market fund implosions. Did you know

[metapunditedgy]

that your fund managers may withhold your own invested money to pay for their legal bills if you try to sue them for mis-managing your money?

The Bent family, which runs The Reserve, is being sued by investors and is also being investigated by the SEC. In response, The Reserve has said that they will hold on to a sizable chunk of investors' money to pay for their own legal fees. If investors sue The Reserve, they will have to pay for legal costs (and possibly punishments) on both sides!

The Reserve claims that this disgusting practice is allowed under Investment Company Acts and the funds' charters. I wouldn't be surprised if many other funds have this built-in "poison pill" to protect the fund managers from the consequences of their own corruption.


See, e.g., NYTimes via <http://www.rockymounttelegram.com/business/sec-staff-seeks-reserve-fund-inquiry-322443.html>

The Bents’ contract with the funds permit them to be indemnified for legal expenses under most circumstances, but both those contracts and federal mutual fund laws bar such compensation in cases of gross misconduct. Ms. DiMartino declined to say if the Bents would be able to tap the assets of the funds themselves to cover the expense of defending themselves in the S.E.C. case.

[Donnachaidh]

1. Wonder how many were told to *just* sign, the rest of the contract is just

"standard boilerplate", and not to worry their little heads about it.

The more that comes out about these hedge funds, the more I think we'll be seeing some riots soon, from the greedy investors trying to lay hands on the hedge fund managers that virtually stole the fillings out of the teeth of the investors.

Guillotine, anyone? :sarcasm:

[formercia]

3. Gold plated pitchforks and designer torches

Pass me the gourmet popcorn, pleeeze.

[mediaman007]

4. Get your money out, then sue!

[Dorian Gray]

7. That was my first thought...

take your money out of the fund, then join the lawsuit.

[metapunditedgy]

8. Won't work; they're refusing to give all the money back. n/t

[Joe Chi Minh]

6. I think maybe a Parisian gentleman may have fallen victim to such

anger.

[metapunditedgy]

9. This was (marketed as) a money-market fund, not a "hedge" fund, FWIW.

At least with hedge funds, you expect your fund manager is doing borderline-legal stuff to make money.

But in this case, these guys are claiming that an ordinary money-market can hold on to your money and use it against you if you try to sue them for mis-using your money.

[billyoc]

2. Publish their home addresses.

[Joe Chi Minh]

5. Even by the "standards" of US capitalism, that is totally surreal. Bare-faced robbery

sanctioned by the Law.