DENVER—A state-created investment pool for government agencies across Colorado is trying to recover $52 million from a New York money market fund.
A lawsuit filed Thursday in U.S. District Court alleges that The Reserve Fund, Reserve Management Company Inc. and Resrv Partners Inc. failed to deliver money as requested by the Colorado Surplus Asset Fund Trust, or CSAFE.
Officials at the government investment pool requested all $525 million it had in the companies’ primary fund on Sept. 15, the day investment bank Lehman Brothers Holdings Inc. announced it was filing for bankruptcy. The money market lost the $785 million it had invested in Lehman Brothers, and the Securities and Exchange Commission approved the fund’s request to suspend withdrawals effective Sept. 17.
Colorado securities regulators are also suing the companies, alleging they violated Colorado’s anti-fraud provisions. A call to the fund after business hours Thursday wasn’t answered, and an attorney representing the companies in the regulators’ lawsuit said he could not comment.
In a statement April 17, the companies said they had distributed 90 percent of their assets and had $4.5 billion remaining. In its lawsuit, CSAFE claims the companies had $62 billion in assets on Sept. 15.
The lawsuit claims the money market companies eventually delivered all but $52 million and failed to meet their obligation by not transferring the money on the day of the request. Money market officials later announced that they had “broke the buck”—meaning the underlying assets fell below $1 for each investor dollar put in—because of soured investments in Lehman Brothers.
Officials with the companies, which pioneered the money market mutual fund nearly four decades ago, are liquidating the fund’s assets.
The Lehman investment represented a small fraction of the fund’s assets, but spooked institutional investors suddenly pulled out huge sums. Their redemptions forced fund managers to unload assets at fire-sale prices amid declining markets.
The investment pool claims in its lawsuit that the delay in eventually receiving its money, which came in four waves over seven months, put at risk critical public services such as police, fire and school districts, along with the credit ratings of hundreds of local governments that depended on the money.
CSAFE helps government entities manage day-to-day cash needs.
