Reserve Fund’s Investors Still Await Their Cash

Regulators have had to be patient, too. Despite all their efforts to restore liquidity and confidence in all money funds, they don’t have any good options in this case other than to monitor the liquidations carefully.

“The staff has been actively involved in the entire process, intervening to protect all shareholders,” said John Heine, a spokesman for the Securities and Exchange Commission.

But it can intervene only so much. The Reserve has proprietary computer systems, so taking over the process at this point could delay the redemptions even further, current and former regulators said.

The largest fund, the Primary Fund, is not eligible for the ad hoc insurance program the Treasury set up for money funds last month. The big US Government Fund seems to meet the criteria and has applied for coverage, but no announcement of its acceptance has been made.

The biggest mystery is why redemptions from that government fund have not been handled more promptly, said James Cracchiolo, chief executive of Ameriprise Financial Services in Minneapolis.

Ameriprise is among those suing the Reserve Fund over the Primary Fund’s losses — it is the company that contends management tipped off big investors . But that lawsuit does not name the US Government Fund, Mr. Cracchiolo said.

“This is good government paper — even the government itself could take it from this fund and not lose a penny,” he said. “We are all very frustrated at the lack of responsiveness from that fund’s trustees. For heaven’s sake, if they can’t find a white knight to take the paper, we’ll take some of it.”

Ameriprise alone has about 400,000 clients caught in the freeze, he said, and his rough calculations indicate that “as many as a million, a million-plus people” could be affected. Records from last year showed the Reserve had about 170,000 separate accounts, but many of those were large omnibus accounts that could serve tens of thousands of individuals, businesses and local governments.

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Mr. Cracchiolo’s firm, like some others, is temporarily offering customers very low-interest loans to help them cope while they wait for a resolution.

The mutual fund industry is equally frustrated, said Paul Schott Stevens, chief executive of the Investment Company Institute, a trade association. “I can’t emphasize too strongly that this absolutely is not typical of money funds,” he added.

He cited a large money fund at Putnam Investments, which was also hit with heavy redemption demands the week of Sept. 15. But it promptly froze the fund and sold it to Federated Investors with scarcely a glitch in customer’s access to their money.

The Reserve Fund’s prolonged crisis is particularly baffling to Michael Brunner, a research scientist in Columbus, N.J., who has been a customer since the fund first opened its doors in 1970. He knew the money fund was not insured, as bank deposits are. “But after 30 years, one doesn’t think it will go bad,” he said.

He can manage without his frozen assets, he added — but he is furious that he still has to, after so much time.

“People talk about this like it’s something that happened,” he said. “But this isn’t something that ‘happened.’ This is still happening. I still don’t have my money and I still don’t know what’s going to happen to it.”

Copyright © 2009 The New York Times

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