The Reserve is taking criticism for declining interviews from reporters and for relying on Web postings to keep shareholders in its funds up-to-date about the status of its money market and cash mutual funds. Yet, there is some evidence that Bruce Bent has been taking his case directly to shareholders to sidestep the public record.

The reaction by shareholders is also demonstrating some of the ways that "Web 2.0" is changing the way investors are keeping themselves informed. It also demonstrates that traditional PR efforts may need to be rethought as the public record evolves.

The Reserve's decision to keep the Bents behind cover is understandable in the circumstances. Indeed, The Reserve's very existence is likely on the line as it faces both numerous lawsuits and a run on its funds. Executives at The Reserve have referred requests for direct interviews to their spokesperson. (The Reserve did inform shareholders on Thursday that it would distribute half of the assets in its Primary Fund, see The MFWire, October 31, 2008).

Shareholders Organize

Grasping for information about what is their life savings in some cases, shareholders in the Reserve funds have turned to Web tools. One of the first places those shareholders turned to was the fund's bulletin board on Yahoo that can be accessed by anyone.

Some of those Yahoo commenters have also formed a group to discuss what is happening in The Reserve's cash enhanced fund (RYPQX). That group has an approved membership list and is not open to the public. The group has received more than 1,850 postings so far in October.

Shareholders in the funds have also taken to commenting on Web sites that carry news articles about the funds. On the Wall Street Journal's Law Blog, for example, commenters have shared what they heard from customer service representatives and even posted the SEC's phone number for those seeking ways to gain more information and vent. One poster informs the board that:

THE SEC HAS BUMPED UP THE RESERVE INVESTORS TO ANOTHER GROUP, DUE TO ALL THE COMPLAINTS. CALL TO GET UP TO DATE DETAILS.

One poster notes that Ferris, Baker Watts -- a regional broker-dealer -- has stood behind the funds to provide liquidity to its account holders. Others single out TD Ameritrade and Ameriprise for what they see as a lack of support for account holders. (All three have announced commitments to protect clients, see The MFWire, September 24, 2008, September 25, 2008, and September 26, 2008.

Still, at least one news story commenter, one "Individual Investor" who posted in response to the above-linked InvestmentNews article, stands behind Bruce Bent, the founder of the fund firm:

However, your readers will be misled by your description of Bruce Bent and Reserve.

Early on, members of the group bombarded the Reserve and Mr. Bent with e-mails and telephone calls. Despite the pressures he's under, within a week or two Mr. Bent began returning group members' calls personally. The only clarity or sense of relief I've experienced in this whole affair are due to Mr. Bent and his firm's web postings.

One member reported that Mr. Bent said that his lawyers kept telling him, "CYA, CYA, CYA" ("cover your a--"), but that he's "sick of it," and "a big mouth," so he's not listening to them.

Personally, I give the man lots of credit. I don't know of another investment professional or organization that would have done anything remotely similar.

A Costly Silence?

Over the past three decades it has become the conventional wisdom that "the cover-up is worse than the crime." It is but a small leap from that CW for people to assume that what appears to be a cover-up must necessarily be hiding a scandal. That is one risk a company runs when its executives do not make personal appearances or statements to calm their customers' nerves.

That is the path that Megan McArdle, a blogger who works for The Atlantic, started down in response to the New York Times article on the Reserve money fund debacle earlier this week:

That sounds kind of suspicious; one can see the record system being overloaded by the volume of redemptions, but for over a month? Can any of my readers comment?

Comment they almost did not, the post has just 11 comments so far, a relatively small number at the blog. Still, those who did comment may leave an impression on readers as one agreed that "You [McArdle] are correct. It is suspicious. Very suspicious."

A commenter to a second McArdle post left a message that should put a chill through every PR person's spine:

Communication from The Reserve have indeed been abominable, but I think Evan Cooper is fantasizing, as only a journalist could, if he believes that better communication might benefit The Reserve in some way. The company is out of business. Every fund the company holds is being liquidated. No one will ever again invest with a company called The Reserve. No one will ever again invest with Bruce Bent. This is not a field where you get a lot of chances.

It is a safe bet that the comment is not a last word any fund executive would want to leave for posterity. 

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