Reserve Management accused of fraud

BOSTON, Jan. 14 (UPI) -- Massachusetts Secretary of State William Galvin has filed suit against Reserve Management Co., claiming it falsely assured investors their money was safe.

Reserve's Primary fund share values fell 3 cents below a dollar -- in money market terms it "broke the buck" -- in September after Lehman Brothers Holdings Inc. filed for bankruptcy protection, The Boston Globe reported Wednesday.

The fund held $785 million in Lehman debt, a small portion of its assets. But, the news of Lehman's collapse triggered a run on the fund with investors demanding as much as $24 billion back in the next 24 hours, the Globe said.

While realizing the fund was in trouble, staff was still reassuring investors their money was safe, the suit contends.

Galvin also said investment firms were the first to have their money returned.

"They misled people and kept people in the fund," Galvin said. "Perhaps most egregiously, they allowed special investors" to exit the fund quicker, he said.

"It makes it more offensive and outrageous," he said.

The Reserve would not comment on the suit.