On Tuesday, Judge Gardephe rejected an attempt by Reserve Management Company (RMCI), the investment adviser to the Reserve Primary Fund – the money market fund that “broke the buck” four years ago after Lehman’s bankruptcy – to send its malpractice action against Wilkie Farr & Gallagher LLP back to state court. The Court concluded that the exercise of federal jurisdiction over the action was appropriate because of the “strong federal interest in the federal securities law issues raised in RMCI’s malpractice complaint.” As we reported previously, in defending the SEC’s securities fraud action against them, RMCI and two of its principals have claimed that they relied on Wilkie’s advice in communicating with the public on September 15 and 16, 2008 and considering a credit support agreement that would preserve the Primary Fund’s $1.00 NAV. RMCI’s malpractice action against Wilkie asserts that Wilkie provided incompetent advice to RMCI that led to it being sued by the SEC and private parties. It also alleges that Wilkie’s simultaneous representation of RMCI and the Reserve Primary Fund presented a conflict of interest that the firm never disclosed to RMCI and that has caused significant prejudice to RMCI. RMCI claims that Wilkie failed to advise RMCI properly about including an indemnification and advancement of attorney fees provision in the management agreement between RMCI and the Reserve Primary Fund.
Continue Reading Judge Gardephe Won’t Send Reserve Fund Malpractice Suit Back to State Court