Fund pioneer Bent, testifying at trial, tries to shift blame


* Bruce Bent takes Manhattan federal court witness stand

* U.S. regulator accuses Bent of lying to investors in 2008

By Grant McCool

NEW YORK, Oct 11 (Reuters) - Money market pioneer Bruce Benttook a swipe at the U.S. government's response to the 2008financial crisis when he testified at his own trial on Thursday,describing the desperate situation that led to the death of hisconservative fund.

The U.S. Securities and Exchange Commission sued Bent, hisson Bruce Bent II and their family-run Reserve Management firmin 2009, saying they lied to investors about the safety of theirmoney after Lehman Brothers filed for bankruptcy on Sept. 15,2008, intensifying a global financial crisis.

Reserve held $785 million in Lehman debt, or 1.2 percent ofthe $62 billion it had invested in its funds. There was a run onReserve funds and sources of liquidity dried up in the marketturmoil, making it impossible to keep up with demand forredemptions.

Bent, answering a question on the Manhattan federal courtwitness stand about the government helping troubled financialinstitutions after the historic Lehman collapse, respondedsharply: "Two days later everybody got it, except Reserve."

Part of the defense strategy is to shift the blame onto theSEC, which sued the Bents. Bruce Bent's testimony implies thatthe government should have made Reserve part of the bailout offinancial institutions in an unprecedented crisis.

The white-haired, flush-faced Bent, 75, at times appearedirritated with the pointed questioning of SEC lawyer NancyBrown, saying "no, no, no," before correcting her. His son BruceBent II, 46, is also expected to testify at the trial.

Brown's questioning over more than three hours took Bent andthe jury through three Reserve board meetings and phone callsbetween the Bents, senior fund executives and lawyers during twohectic days of Sept. 15 and Sept. 16, 2008. The eight jurorsheard that Reserve approached the New York Federal Reserve Bankand told the SEC itself about its dire straits.

Bent testified they were in a "desperation situation" and"we're throwing it at the wall, we're hoping something sticks."

The Reserve "broke the buck" - an almost unheard of eventfor money market funds when their net asset value falls below $1a share. By January 2010, Reserve said it had distributed nearlyall of the $50.5 billion left in its Reserve Primary fund afterLehman's bankruptcy.

Investors recovered about 99 cents on the dollar.

The regulators and the Bents failed to reach a settlementand the case went to trial on Tuesday. The trial is expected tolast three weeks before U.S. District Judge Paul Gardephe.

The jury is being asked to decide whether or not the Bentsplayed by the rules of the securities markets. The SEC seeksunspecified gains the Bents might have made and a fine.

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

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

(Reporting By Grant McCool; Editing by Richard Chang)

((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/