Projo 7 to 7 News Blog

The state is taking steps to try to recover $62 million in state-owned assets from a money-market fund frozen by the Securities & Exchange Commission in late September, the state's Gen. Treas. Frank Caprio said today.

"The issue the state has is when the funds will become available, not the value of the state's investment," said Caprio in a statement issued by his office.

At this point, "we have money to cover the state's [current] operating needs through the next pay period,'' said Caprio's deputy chief of staff Xaykham Khamsyvoravong said.

The background: Rhode Island invested $62 million in a $7 billion government-insured, but privately held "Reserve U.S. Government Fund.'' Investors are entitled to redemption within seven days.

On Sept. 22, however, the SEC issued an order permitting the fund to postpone payment of shares that had been submitted for redemption after one of the member funds (and not the one in which Rhode Island had its money) started trading below the money-fund industry's $1-a-share standard.

According to the treasurer's office, the SEC order "temporarily placed the redemption timeline in limbo to permit the Reserve Fund to liquidate that fund in an orderly manner as market conditions allow.''

The SEC has not set a liquidation timeline yet and they are overseeing the liquidation of the fund.

Working in concert with an unofficial state "financial SWAT team,'' Caprio is moving on two fronts. He has asked the Reserve Management Co. to return the assets so the state's traders can try to market them on their own, a move that would require SEC approval. He is also seeking additional government backing for the money. According to the statement issued by his office:

"On Monday, after weeks of negotiation by phone, [Caprio] traveled to New York to speak directly with Reserve Management Co. Founder and Chairman Bruce R. Bent about the state's need to access the $62 million in Rhode Island money held with the fund.''

After consulting with the state's trading desk, consultants at Russell Investments and money managers Brown Brothers Harriman, "Caprio determined that the State and its money managers would be capable of selling, at no loss to the state, the securities currently held by the Reserve,'' according to his office.

"At the request of Caprio and other institutional investors, Bent has agreed to request permission from the SEC to transfer securities, equal in value to the state's investment, directly to the state. The move allows the state to then liquidate those funds using its own trading desk and money managers, allowing immediate access to the cash.''

"The liquidity crisis in the financial markets has temporarily suspended our access to these government-backed investments, but we are taking all necessary steps to insure a full recovery as soon as possible,'' Caprio said today after briefing the governor and key lawmakers. "I have full faith in the guarantee of the U.S. government and in our ability to receive full value for these funds," he said.

In the interim, the state will manage its cash and remain current on its obligations by "using consistent cash management practices."

Other members of the state's "SWAT team'' include: state budget officer Rosemary Gallogly, Department of Administration director Jerome Williams, House and Senate leaders and their fiscal advisers.

In a related consequence of the current national financial crisis, the treasurer's office acknowledged that the state's pension fund has lost 25 percent of its value since the beginning of the year, dropping from $8.4 billion to $6.3 billion. By way of comparison, the S&P 500 index is down 38 percent year-to-date.

 Tags  Reserve U.S. Government Fund Rhode Island

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