SEC Sues Money Market Fund Sponsor for Misrepresentations to Board and Shareholders
The SEC filed a lawsuit against a money market fund sponsor and its principals for falsely assuring the Board, investors, and the rating agencies that the fund would maintain a stable $1.00 NAV. During a two-day period following Lehman’s bankruptcy filing, the sponsor continuously reassured the Board and investors that it would support the funds and obtain a credit support agreement as the value of Lehman paper declined. At the same time, the fund sponsor had engaged investment bankers to find a buyer for the firm. According to the SEC complaint, the fund sponsor instructed the investment banks to inform potential buyers that they would not be required to support the $1.00 NAV, which directly contradicted public assurances to protect the NAV.
OUR TAKE: We think the lasting impact of this case is that the SEC has essentially approved the Board’s actions in the face of apparent misrepresentations by the advisor. It appears that the Board and its counsel asked the right questions but did not receive truthful responses. Once the Board received truthful information, it took immediate action to inform shareholders and ultimately liquidate the fund.