Wires

Money market pioneer Bent fights SEC fraud claim at trial

* Bruce Bent and son expected to testify at NY civil trial

* Bents fraudulently told investors that fund was safe-SEC

* Fund managers could not have foreseen world crisis-defense

By Grant McCool

NEW YORK, Oct 9 (Reuters) - A jury is being asked to decidewhether money market pioneer Bruce Bent and his son played bythe rules when their fund became a victim of the collapse ofLehman Brothers in September 2008.

Opening a civil fraud trial in Manhattan federal court onTuesday, a U.S. Securities and Exchange Commission lawyer saidthe Bents lied to investors and trustees in attempts to stop arun on their Reserve Fund on Sept. 15 and 16, 2008.

Hours after Lehman went bankrupt on Sept. 15 and marketsworldwide were in turmoil, "wasn't this a moment that cried outfor honest answers?" SEC lawyer Nancy Brown asked the jury. Shesaid the Bents told investors what they wanted to hear - thatthe Bents intended to use their own money to keep investmentssafe.

"The evidence shows, it was a lie, plain and simple," Brownsaid.

Reserve held $785 million in Lehman debt, or 1.2 percent ofthe $62 billion it then had invested. The day after Lehman filedthe biggest bankruptcy in history, the fund's net asset value"broke the buck" or fell below $1 a share.

The Bents' lawyer, in his opening argument, offered adifferent story, however. Reserve did not have enough money tocover a rush of redemptions, and the Bents told the board oftrustees and the SEC itself that was the case, he said.

"They were people trying their best under absolutelyunprecedented circumstances," the lawyer, John Dellaportas, toldthe nine-member jury. He said the law demands that moneymanagers take reasonable care and "they said what they intendedto do at the time and they meant it."

The market regulator sued Bruce Bent, his son Bruce Bent IIand the Reserve Management company in 2009 for breakingsecurities laws. It seeks unspecified gains the Bents might havemade and a fine in the trial, before U.S. District Judge PaulGardephe.

Reserve was the first money-market fund in the United Stateswhen it started in 1970 by Bruce Bent. Its collapse was a driverof the credit market seizure following Lehman's bankruptcy. Newregulations have since reduced the credit and maturity risksthat money funds may take.

By January 2010, Reserve said it had distributed nearly allof the $50.5 billion left in its Reserve Primary fund afterLehman's bankruptcy. Investors recovered about 99 cents on thedollar.

The Bents' lawyer told the jury that there was no fraud orcover-up by father and son as the SEC lawsuit maintained, duringa 12-hour period over two days in mid-September 2008.

"We say the world changed between Monday and Tuesday and wehave a lot to support that," Dellaportas, said. He said hisclients would take the witness stand "to look you in the eye andtell you what happened."

The Bents could testify as soon as Wednesday in a trial thatis expected to last three weeks.

The case is SEC v. Reserve Management Co et al, U.S.District Court, Southern District of New York, No. 09-04346

(Editing by Steve Orlofsky)

((grant.mccool@thomsonreuters.com; Twitter: @GrantAMcCool; +1212 393 9461 or +1 646 549 4335; Reuters Messaging:grant.mccool.thomsonreuters.com@reuters.net))

Keywords: RESERVE SEC/