Investors feel burned by what looked like a money market fund

The Baltimore Sun

Neil Pelovitz says he has never been a risk taker when it comes to his money.

"I'm a saver. I'm not an investor," says the 48-year-old Baltimore County resident. "I had never made any stock purchase."

So when a TD Ameritrade representative called last year offering what appeared to be a money market fund with a higher yield, Pelovitz says, he figured he had nothing to lose.

Now, for the past three months, Pelovitz' life savings have been frozen in the fund. He is not sure when he will see his $200,000 again.

Pelovitz invested in the Reserve Yield Plus Fund, a short-term bond fund run by the Reserve Management Co. This is the same company that managed the Primary Fund, the oldest money market fund that is in being liquidated after its share price fell below $1 or, as it is called in the industry, "broke the buck."

Even though Yield Plus isn't a money market fund, it did share some characteristics with the Primary Fund. Both had a target price of $1 a share. Both invested in Lehman Brothers Holdings' securities that became worthless once the investment banking firm failed in September. And each fund saw its share price drop to 97 cents.

Most of the attention has focused on the troubles at the giant Primary Fund. But there are hundreds of investors in Yield Plus who have not been able to access their $1.2 billion since the fund was frozen in mid-September to prevent a rush of redemptions.

Late last month, a shareholder lawsuit was filed in New York against Reserve Management and TD Ameritrade over the marketing of Yield Plus.

While the prospectus states that Yield Plus is not a money market fund, it also said the fund's goal was to "preserve capital" and maintain a $1 share price, the lawsuit claims. Yield Plus then veered from those goals and invested in riskier securities to achieve higher yields, the lawsuit said.

As for TD Ameritrade, which sold about 98 percent of certain classes of fund shares, the suit claims that the brokerage misrepresented that Yield Plus was "just like a money market fund."

The lawsuit seeks class action status. The Reserve and TD Ameritrade declined to comment.

The Reserve is liquidating Yield Plus. The company told investors recently they can expect to receive an initial distribution of about half their money next week. More distributions will be made later, although there is no timetable.

Pelovitz, who is between jobs, says he could use his money now. He is upset with TD Ameritrade, which he says should have known the investment was unsuitable for him.

"All they have to do is look at my history and see that I'm not a sophisticated investor," he says.

Rick Ramseier, 73, invested nearly a half-million dollars in Yield Plus, money he hoped to leave to his children. The Montana investor says he is frustrated by the lack of communication from Reserve and TD Ameritrade, although he is more upset with the brokerage.

"What really rankles me is that TD Ameritrade, in my opinion, marketed it as a money market fund," the retiree says. "Perhaps I was gullible. I don't think TD Ameritrade was straightforward."

Ramseier says he has learned from this experience.

"Pay more attention to your investments," he says. "Certainly read the prospectus more."

Copyright © 2021, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad