Third Avenue Institutional International Value Fund LP, a fund of Third Avenue Management LLC, filed a class action Friday against Reserve Management Corp. hinging on the firm's redemption process last week, when the net asset value of the Reserve Primary Fund fell to 97 cents.
The complaint, filed in U.S. District Court for the Southern District of New York, sought a temporary restraining order to stop the fund from making any more redemptions.
Third Avenue holds that the decision to allow only investors who filed redemption requests before 3 p.m. Sept. 16 was arbitrary and a violation of The Reserve's prospectus. The fund said that it unfairly gave certain shareholders advantages to the detriment of others, including Third Avenue.
Both Third Avenue and The Reserve are based in New York.
Meanwhile, The Reserve filed with the Securities Exchange Commission Friday to suspend all its redemptions and postpone the distribution date of payments for a period longer than seven days.
“We signed a stipulation with their counsel that the fund will not make any redemptions until the SEC rules on [The Reserve] fund's application [to the SEC],” said John Rizio-Hamilton, attorney at Bernstein Litowitz Berger & Grossmann LLP of New York, which represents Third Avenue. “It is our understanding that no redemptions will be made while the [distribution] plan is being developed.”
Once a notice of the plan is posted, the firm will consider the complaint.
“We'll look at that and decide if [the complaint] merits further action,” Mr. Rizio-Hamilton said.
A spokeswoman for The Reserve declined to comment on the lawsuit.
This is the second such suit to be filed. Also Friday, Ameriprise Financial Inc. of Minneapolis and its independent-broker-dealer subsidiary, Securities America Inc. of Omaha, Neb., sued The Reserve and its founder, Bruce Bent, alleging misconduct in the administration of its giant money market mutual fund, the Primary Fund.
The suit, which was filed in federal court in Minneapolis, alleged that The Reserve gave special treatment to its largest clients just as the Primary Fund was losing value and about to “break the buck,” or dip below $1 per share.
