The father of money market funds, Reserve Primary Fund founder Bruce Bent Sr., was among those charged with fraud on Tuesday by securities regulators for allegedly failing to tell investors about the fund's vulnerability to Lehman Brothers' bankruptcy.

The Securities and Exchange Commission said Reserve Management Co, its chairman Bruce Bent Sr, vice chairman and president Bruce Bent II and Resrv Partners Inc failed to provide key information about Lehman holdings to investors, the fund's board of trustees, and rating agencies.

The SEC said it also seeks to expedite the distribution of the fund's remaining assets to investors, many of which have filed lawsuits in federal and state courts seeking damages for shareholders who had not redeemed their shares as of September 16 when the fund halted redemptions.

The Reserve Primary Fund, which had $785 million in Lehman-issued securities, became illiquid in September when the fund was unable to meet investor requests for redemptions.

The Primary Fund sent shock waves through the investment management world when it halted redemptions and triggered a run on money-market funds, which had been considered safe in times of market turmoil.

The SEC said in its complaint that the defendants engaged in a systematic campaign to deceive the investing public into believing the fund was safe and secure despite its substantial Lehman holdings.

The SEC complaint, filed in U.S. District Court for the Southern District of New York, seeks financial penalties and the repayment of ill-gotten gains.

A lawyer for Bruce Bent Sr., 71, and his son, Bruce Bent II, 42, both of Manhasset, New York, declined to comment. A lawyer for the fund did not immediately return calls seeking comment.

The SEC's complaint called Bruce Bent Sr the public face of the Reserve, and a longtime advocate of the safety and stability of money market funds.

Peter Crane, president of Crane Data and publisher of Money Fund Intelligence, said the Reserve Primary Fund's failure was a tragedy for investors and the Bents.

There is no need for a trial sheriff here, the markets have already taken (Bruce Bent) out back and shot him, Crane said.

The SEC said that since it was created in 1971, the Reserve Primary Fund historically invested in very conservative assets such as government securities and bank certificates of deposit.

But, starting in 2007 and 2008, the fund began to purchase riskier commercial paper issued by financial firms including Lehman, Merrill Lynch and Washington Mutual, with the higher yields paid by these securities generating attractive returns for fund shareholders, the SEC said.

(Reporting by Rachelle Younglai in Washington, Martha Graybow and Grant McCool in New York and Svea Herbst-Bayliss in Boston; Editing by Tim Dobbyn)

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