SEC Invokes Seldom-Used Power in Reserve Primary Fund Case

May 21, 2009
The Securities and Exchange Commission has used a little-known power under the Investment Company Act of 1940 to attempt to take charge of the liquidation of The Reserve Primary Fund. The last time the Commission used this power was in 1971. Here, the Commission relied on Section 25(c) of the 1940 Act, which authorizes a United States District Court, upon proceedings instituted by the Commission, to enjoin the consummation of any plan of reorganization the court determines is not fair and equitable to all security holders. This update discusses the case and its possible implications.