hay,+^C^ 9 1 CLASS ACTIQN - Stanford Universitysecurities.stanford.edu/filings-documents/1041/RYPYX_01/20091120… · Case 1:08-cv-1 0261 -PGG Document 63 Filed 11/20/2009 Page 6

Case 1:08-cv-1 0261 -PGG Document 63 Filed 11/20/2009 Page 1 of 68

UNITED STATES D1 TRICT COURTSOUTHERN DISTRICT OF NEW YORK

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WILLIAM ROSS and DAWN ROSS, Individually Ci it ActicGAS ànd On Behalf of All Others Similarly Situated, P

Plaintiffs, CLASS ACTIQN

Vs.

RESERVE MANAGEMENT COMPANY, INC.RESERVE MANAGEMENT CORPORATION,BRUCE R. BEAT, BRUCE R. BEAT Ti, ARTHUR T.BENT 111, JOSEPH H. MOGLI , FREDRIC J.TOI+,r1CZYK, WILLIAM J. GERBER, J. JOERI KETTS, TORONTO DOMINION BANK,RESRV PARTNERS, INC., AND TDAMERITRADE HOLDING CORPORATION,

Defendants.

x

RESERVE YIELD PLUS FUND INVESTOI GROUP'S . FIRST AMENDED GLASS ACTIONCOMPLAINT


I. NATURE OF THE ACTION

}. This is a class action braught by the Lead Plaintiff. the Reserve Yield Plus

Fund Investor Group, on behalf oFall persons or entities who purchased or geld shares of the

Reserve Yield Plus Fund ("Reserve Field Plus Fund" or the "fund"), which shares were

offered, sold or managed by The Deserve Family of affiliates, and TD Arneritr de during the

period froin July 27, 2007 to September 16, 2008, inclusive (the "Class Period") and who

were damaged thereby. 'Che action pursues remedies for purchasers and holders of the

Reserve Yield Plus Fund, including in ccnnection with its Jul} 27, 2007 offering (the

"OlTerinW), seeking to pursue remedies under the Securities Act o 1933 (the "1933 Act"),

the Securities Exchange Act of 1934 (the "1934 Act" ), the Investment Company Act of 1940

(the "1940 Act") and state law. The action does not seek to recover any monies from the

assets of the Fund.

I The Reserve Short-Term Investment Trust was organized as a Delaware

statutory trust on January 14, 2004. The Trust is an open-end, diversified management

investment company, registered with the Securities and Exchange Commission ("SEC') under

the 1940 Act.

3. 'Che Deserve field Plus Fund is a type of diversified mutual Fund or cash fund,

designed as a convenient complement to the investment of temporary cash balances in short-

term money market accounts or instruments. Investors place cash in this type of fund with the

expectation that returns will not he especial ly high but also with the expectation that managers

will manage the fund in a inanner that will inaintaiit a stable $1.00 net asset vaILIe ("NAV").

4. The Reserve Yield Plus fund was comprised of various Classes, each to be

managed with the stated intent of maintaining a stable $1.00 N AV. The Fund's Classes are as

follows: (i) Reserve `f ield Plus Fund Class Treasurer's Trust ('`g lass TT"), (i i) Reserve Yield

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Plus Fund Class R ("Class R"); (iii) Reserve Yield Plus Fund Liquidity Class 1; and (iv)

Reserve Yield Plus fund Liquidity Class lii, Liquidity Class I l and Treasurer's Trust

commenced operations c June 8, 2005, Liquidity Class 1 and Class R commenced

operations on August 31, 2005.

5_ TD Ameritrade Holding Corporation ('`TD Ameritrade") sold more than 97%

of Fund Class TT, more than 98% of Fund Class R, and nearly 85% of al l of the Fund's

Classes cornbined.

6. Reserve Management Corporation ("Tlie Reserve"), and its founder, Bruce

Bent Sr„ were long time advocates of the safety and stability of money market funds. Bent Sr.

and his Family own and control Defendants RMCI and Resry Partners, Inc, According to

RMty I, as of September 2008:

The Reserve is the world I s most experienced money fund managerand the largest asset management company dedicated solely tocash and liquidity management. With over 5125 billion in assets.representing the trust of hundreds of institutions and rnl II ion s of

individuals, The Reserve is recognized as the fastest growingmoney fund complex in 2005, 2006 and 2007 according toi ill oneyNct.

7. 0n July 27, 2007. Defendants caused the Reserve Short-Term Investment Trust

('`Reserve Short-'Perm investment Trust" or the "Trust") to file with the SEC a Registration

Statement nn Form N-1A, a Prospectus and Statement ofAdditionaI In formal icin (collectively

the "Prospectus"). The Prospectus ernphasiaed the Fund as having till of the Features ofa

money market fund. Tor example, the SEC defines a Money Market. Fund as follows on their

website:

A money market fund is a type of mutual fund that is required bylaw to invest in law-risk securities. These funds have relativelylaw risks compared to other mutual funds and pay dividends thatgenerally reflect short-term interest rates, , ..

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Money rnarket funds typically invest in government securities,certificates of deposit, commercial paper of companies, or otherhighly liquid and low-risk securities. They attempt to keep their netasset value (NAV) at a constant $1.00 per share — only the yieldgoes up mid down.

http;//www .sec.gov/answers/rnfrnmkt,htrn . The SEC website also points out that money

market funds are tightly regulated under the Investment Company Act of 1940 and the rules

adopted under that Act, pailioulariy Rule 2a-7 under the Act. #d. It is widely recognized that

individual investors use money market funds for a variety Df reasons they choose not to use a

regular mutual fund:

This combination of stability of principal and payment of short-term }Melds has made money market funds one or the most popularinvestment vehicles for man} different types of investors.Commonly offered features, .5uch as check-writing privileges.Exchange privileges, and near-immediate liquidity, havecontributed to the popularity of money market funds. More than750 money market funds are registered with the Commission, andcollectively they hold approximately $3.8 trillion oFassets. Moneymarket funds account for approximately 39 percent of allinvestment company assets.

Individual (or "retail") investors use money market funds for avariety or reasons. For example, they may invest in money marketfunds to hold cash temporarily or to take a temporary "defensivepositicrr" in anticipation of declining equity markets. Moneyinarket funds also pi ay an important mole in cash managementaccounts For banks, broker- dealers, variable insurance products,and retirement accounts. As of December 2008, about one-fifth ofU.S. households cash balances were lie Id in money market Funds.,,

Securities and Exchange Commission, 17 CFR Parts 270 and 274 . Similarly, the Prospectus

stated that the Reserve Yield Plus Fund's focus was to "seek as high a level of current income

as is consistent with the preservation of capital and liquidity" and a "stable $1.00 share price.'"

The Fund later issued reports that touted the Fund as being an "enhanced cash fund[J" ,

emphasized the Fund's focus an "safety oFprincipa1, liquidity and soundness of slacp" and

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represented that "The Fund is designed as an investment vehicle for short-term cash

management and is intender) to provide liquidity to shareholders."

8. Eighty-five to ninety-eight percent orthe Fund's purchasers were sold their

interests in the Fund by TD Areritrade and its employees. As a matter cf course, TD

Ameritrade steered investors who sought to invest in a rnoney market ILnd into the Fund as a

money market fund, or into the Fund as an investment option that was just like a money

market fund. TD Ameritrade routinely used the magic words deF'ining a money market fund,

highlighting that the Fund sought to maintain a 51.00 NAV, and that the Fund was a safe and

stable investment,

9. Due to defendants' actions, misrepresentations and omissions of maw rial facts,

and due to defendants' breaches of riduciary obligations as described herein, investors

purchased and/or continued to hold shares in the Fund.

10. On September 1, 2008, The Reserve Fund, an entity related to the Reserve

Short-Term Investment Trust, shocked the market when it issued a press release concerning

one of its money funds commonly known as the Primary Fund. The release announced in part

that: "The value of the debt securities issued by Lehman Brothers Holdings, Inc. (face value

$785 million) and held by the Primary Fund has been valued at zero a ffective as of 4:DOPM

New fork time today. As a result, the NAV of the primary Fund, e1Yective as of 4:OOPM, is

$0.97 per share.''

11, Further, on September 16, 2008, the NAV ol'the Reserve Yield Plus Fund also

collapsed from $1.00 per share to close at $4,97 clue to its investment in debt securities issued

by Lehman Brothers Holdings, Inc. ("Lehman").

1. Thereafter, the Reserve Short-Term Investment Trust suspended providing a

daily NAV on the Deserve Yield Plus Fund.


13. The true facts, which were oinitted from the Prospectus and other statements

made by defendants during the Class Period. were as follows:

(a) The Fund was no longer adhering to the stated objectives ofprescrving

capital, providing liquidity and stability, but in an effort to achieve greater yields was

pursuing riskier instruments;

(b) The Fund was purchasing significant amounts of Lehman commercial

paper between February and March 2008, when the financial community was concerned about

Lehman's financial solvency, especially after Bear Stearns coIIapsed in March 2008;

(c) The Fund was neither a money market fund, nor just like a m ney

market fund for purposes of maintaining a safe and stable $1.00 NAV;

(d) The Fund was not designed to protect the $1.00 NA V, as were

traditional money market funds, and was thus significantly riskier than money market funds;

fie) The Fund's internal controls were inadequate to prevent defendants

from taking on excessive risk;

{q TD Ameritrade failed to disclose the extent of its relationship with the

Trust and the Fund, and the otmpensation that it received by placing Class Mambers' assets

int4a the Reserve Yield Plus Fund;

(g) The Reserve entities did not have sufficient resources to support

maintenance of a stable $1.00 NAV; and

(h) TD Ameritmde had no intention to support the Fund or commit its

resources to maintenance of stable S1.'D0 NAV.

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H. JURISDICTION AND VENUE

14. The claims asserted herein arise under and pursuantto § 11, 12(a)(2) and 15

of the 1933 Act, §§ 10(b) and 20(a) of the 1934 A ,.t and SEC Rule 1 Ob-5, 13(a) of the 1940

Act and state law.

15. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. § 1331, §22 of the 1933 Act, 27 of the 1934 Act and §44 c the 1940 Act.

16. Venue its proper in this District pursuant to 28 U.S.C. 1391(b), because many

ofthe acts and practices complained of herein occurred in substantial part in this District.

17. In connection with the acts alleged in this complaint, deFendants, directly or

indirectly, used the means and instrumentalities of interstate corn merce, including, but not

Iimited to, the mails, interstate telephone communications and electronic communications, and

the facilities of the national securities markets.

I11. PARTIES

19, The Lead Plaintiff, the Reserve Yield Plus Fund Investor Group C'Plaintiff" ar

"Plaintiffs") is comprised as Follows:

(a) Plaintiff David Clouse acquired shares of the, Fund through TD

meritrade, and has been damaged thereby.

(b) PIaintiffThomas Jolinston acquired shares c the Fund through TD

Ameritrade, and has been damaged thereby.

(c) Plaintiff David Krug acquired shares of the Fund through TD


(d) Plaintiff E. H. Levering acquired shares of the Fund through TD

Arneritrade, and leas been damaged thereby.

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(e) Plaintiff 1V1ark Chipman acquired shares of the Fund through TD


{f) Plaintiff Wayne Lehman acquired shares of the Fund through TD

Ameritrade, and has been darnaged thereby..

19, Non-Defendant Reserve Short-Term Investment Trust is an open-end

management investment company registered Linder the 1940 Act. The Trust and its officers

and trustees are responsible for ensuring that the Fund complies with its stated objectives_

The Trust was the registrant of the Offering. The Trust is based in ?slew York, New York.

The only business of the Trust was operation of the Reserve Yield Plus Fund C"Yield Plus

Fund" or "Fund"). The Fund, a diversified mutual fund, was managed and marketed by

RM CI and Resry Partners as a fund that sought to provide investors with a stable $1.00 NA V.

The Yield Plus Fund held $30 million in Lehman debt in its port Fnlio on September 15, 2005.

The Yield Pius Fund is governed by the same Board of Trustees as the Reserve's Primary

Fund.

0, The Yield Plus Fund was marketed and operated like a money market fund that

historically provided shareholdens with a 5 1. 00 per sliare NAV. Like most investors in money

market funds, investors in the Yield Plus Fund viewed it as a sane and stable option for

preservation of capital. For many investors seeking preservation of capital and virtually

immediate access to their funds, money market funds are an attractive regulated alternative to

bank deposits.

21. Defendant Reserve Mnnagemem Company, Inc. ("RMC1") acts as the Fund's

investment adviser, monitors a range of economic and financial factors and, based on that

analysis, the assets of the Fund are invested in a mix of U - S - dollar denominated securities that

are intended to provide ws high a return as possible without jeopardizing the stability of the

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Fund's share price and without violating its investment policy. R M C I furnishes continuous

investment advisory and other management and administrative services to the Fund, including

transfer agent services. For its Services, the Fund pays RMCI a comprehensive management

rec at an annual rate based on avffrage daily net assets of each outstanding class of the Fund's

shares. RM I has its principal place of business in New York. RMC1, which carries out its

business under the name "The Reserve," is a privately Held corporation owned and controlled

by Bruce Dent S r. and Isis family, including Defendant Bruce Bent 11, with its headquarters

and principal pi ace of business in Ncw York, New YcA. RMCI has been registered with the

Commission as an investment adviser since 1984. In 2008, RM I provided investment

advisory services to five registered, apen-end, investment companies set up as trusts, offering

a total of 22 open-end investment portfolios (collectively, the "Reserve Funds"). RMCI had

approximately $120 b111ion in assets under management as of September 12, 2008.

2. Defendant Resry Partners, Inc. ("Resr y Partners'*) acted as the distributor of the

Fund and is an affi Bate of kM C 1. Resr y Partners acted as urn undenyriter in the sale of the

Fund in connection with the Offering, helping to draft and disseminate the Offering

documents. Resr y Partners is a broker-dealer registered with the Commission anti a member

of FINRA. Tlic Bents collectively own and control Resr y Partners. Resn, Partners has its

Headquarters and principal place of business in New York, New Mark.

23. Defendant Reserve Management Corporation (" -f he Reserve") is the parent

company to RMCI, and is based in New York, New fork. The Reserve controls R MC 1,

Rcsry Partners, and the Trust.

24, The Individual Reserve Defendants are-

a. Defendant Bruce R. Sent, Sr. ("B. Bent") is, and at all relevant times was,

Chairman, President, Treasurer and trustee or the Reserve Short-'Perm

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Case 1:08-cv-10261-PGG Document 63 Filed 11/20/2009 Page 10 of 68

Investment Trust and the Fund. lie was also Chairman of RMCI, President of

Reserve Management Corporation, Chairman and Director of Reserve

Management Corporation ( "RMU) and Chairman and Director of Resry

Partners, Inc. B. Bent controls RMC1, Resr y Partners, and the Trust. B. Bent

has been employed by The Reserve family ofcompanies since 1971; he resides

in Manhasset, New fork. B. Bent signed or authorized the signing of the ICI- I A

Registration Statement, Defendant B. Bent is sued herein in his individual

capacity and as an officer and control person of RMCI, Resr y Partners, and the

Trust, and as a signatory of the Registration Statements of the Trust.

b. Defendant B rue c R. Bent I1("B.R. Bent'`) is, and at all relevant times was, a-

Chief Executive Officer (`CEO"), Senior V i c c President and Assistant

Treasurer of the Reserve Short-Term Investment Trust and the Fund. He was

also Vice Chairman, President, Assistant Secretary and Assistant "freasur^ r,

Vice Chairman, President, Assistant Secretary, Assistant Treasurer and

Director of) eserve Management Corporation and Vice Chairman, Secretary,

Assistant Treasurer and Director of Resry Partners, Ine., both of which have

the same address as the Trust. B.R.Bent controls RMCI. Resr y Partners, and

the Trust. B. R. Bent is the Son of B. Beau. B. R. Bent has been employed by

RMCI since 1991. he resides in Manhasset, New York. B.R. Bent signed or

authorized the signing of the -IA Registration Statement. Defendant B. R.

Bent is sued herein in his individual capacity and as an officer and as a control

person of RMCI, Resry Partners, and the Trust, and as a signatcry of the

Registration 8taternents of the Trust.


c. Defendant Arthur T. Bent 1l[ ("A. ]lent") is, and at all relevant times was, Co-

CEO, Senior Vice President and Assistant Secretary of the Reserve Short-Terra

Investment Trust and the Fund. A. Bent is the son of B, lent, lie was also

Vice Chairman, Sr. V ice President. COO/Treasurer and Assistant Secretary of

RMI; Vice Chairman, President, Treasurer Chief Operating Officer,

Treasurer and Director of Deserve Management Corporation and Assistant

Treasurer and Director of Resr y Partners, Ine., both of which have the same

address as the Trost. A. Bent controls RCI, Resry Partners, and the Trust. A.

Bent signed or authorized the signing of the N-1A Registration Statement.

Defendant A. Bent is sued herein in his capacity as an oFf icer of the Trust and

as a control person of RMC1. Resry p artners, and the Trust, and as a signatory

ofthe Registration Statements of the Trust.

5. Defendant TD Ameritrade Holdings Corporation (''TD Ameritrade" or

"TRAM"), is a Delaware Corporation which provides a balance of investment products and

services to retail investor and independent registered investment adviser clients. TD

Airedtrade offers investment services, including an active trader program, long-term

investment solutions and a national branch system. TD Ameritrade acted as an offeror and

seller in the sale of shares of the Fund. In so offering tend selling, TD Ameritrade also

engaged in a common sales program by which its sales agents were instructed to keep

investors from going to competitors by representing to investors that the Fund was a money

market fund or just Ii€ce a money market fund, or that the Fund was a money fund that would

not lose value beIow the 1.00 NAV.

6, The Individual TD Arneritrade Defendants are:

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a. [defendant Joseph 11. Moglia ("Moglia") is presently the Chairman of the

Board of TD Ameritradc, and was formerly the Chief Executive Offi cr of TD

Ameritrade during the Glass Period until September 2008, and a control perôn

thereof.

b. Defendant Fredric J. Tomczyk ("Tomczyk") is the ChiefÈxecutive Officer,

Director, and Principal Executive Officer ofTD Ameritrade, and has been the

Chief Executive Officer since at least September 28008. Tomczyk is a control

person of TDAM.

c. Defendant WiIIiam J. Gerber ("G erber") is, and at all relevant tirnes was, Chief

Financial 0 free r ("CFO"), Executive Vice President, and Principal Financial

and Accounting Officer of TD Arneritrade. Gerber is a control person of

TDAM.

d. Defendant J. Joe Ricketts ("Ricketts") owned or controlled over 22% of TD

Ameritrade, controlled three seats on the Board and is, and at all relevant times

was, a Director and controlling shareholder of TD Ameritrade, and a control

person thereof_

e. Defendant Toronto-Dominion funk {"Toronto-Dominion" , headquartered in

Toronto, Canada, is a major shareholder ofTD Ameritrade, and a control

person thereof. As of February 2008, Toronto - Dominion owned approximately

40"/o of TD Ameritrade shares.

27. By virtue of m Ameritrade ' s holding ofthe 95-98% of the, Reserve field Plus

Fund's shares for the benefit oF'rD Ameritrade's clients, TD Amcritrade and the Individual

TD Ameritrade Defendants' were controlling persons of the Trust and the Fund,

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IV, CLASS ACTION ALT GrA'TIONS

28. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons or entities who

acquired shares of the Fund traceable to the false and misleading Prospectus for the Offering,

or purchased or lield the shares during the Class Period, and who were damaged thereby (the

"class'). Excluded from the Class are defendants, the officers and trustees of the Reserve

Short-Tenn Investment Trust, the Fund or any of the other defendants, at all relevant times,

members of their immediate families and their legal representatives, heirs, successors or

assigns, acid any entity in which defendants have or had a control ling interest.

29, The members of the Class are sc numerous that joinder o F a I I members is

impracticable. The Fund's shares were actively traded in an efficient market. While the exact

number of g lass members is unknown to Plaintiffs at this time and can only be ascertained

through appropriate discovery, Plaintiffs be ieve that there are hundreds of members in the

proposed Class. Record owners and otter members of the Class may be identified fte n

records maintained by the Reserve Short-Terin Investment Trust or its transfer agent and may

be notified of the pendency of this action by mail, using the form of notice similar to that

customarily used in wuritics class actions. The Fund has hundreds of millions of outstandirng

shares.

30. Plaintiffs' claims are typical of the claims of the members of the Glass as all

members of the Class are similarly affected by defendants' wrongful conduct in violations of

federal law and state law that is complained of herein. Plaintiffs will fairly and adequately

protect the interests c the members of the Glass and have retained counsel competent and

experienced in class and securities litigation.

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31, 0ommon questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of'the Class. Among the

questions of law and fact common to the C lass are;

(a) whether the 1933 Act was violated by defendants' acts as allege herein;

(b) whether the 1934 Act was violated by defendants' acts as allege herein;

(c) whether the 1941 Act was violated by defendants' acts as allege herein;

(d) whether defendants breached their fiduciary duties to members of the

Class;

(e) whether statements made by defendants to the investing public in the

Prospectus misrepresented material facts about the business, operations

and management of the Deserve Short-'Germ Investment Trust or the

Fund;

(f) whether TD Arneritrade engaged in a common sales program by which

it and its agents misrp-presEnted to inve-5tors material facts about the

Fund; and

(g) to what extent the members of the Class have sustained damages and

the proper measure of damages.

32. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

Furth errnore, as the damages suffered by individual Class members may be relatively small,

the expense and burden of individual litigation make it impossible far members of the Class to

individually redress the wrongs done to them. There will be no difficulty in the rnanagernent

of this action as a class action.


V. THE FALSE AND DEFECTIVE REGISTRATIONSTATEMENT AND PROSPECTUS MATERIALS

33. On July 27, 2007, and again on July 28, 2U08, the Reserve Short-Terin

Investment Trust filed with the SEC u Registration StalelnenI on Form N-IA, a Prospectus

and Slaternent of Additional Information (collectively the "Prospectus"}, Each ofthe

Prospectus documents emphasized the Fund's focus on "preservation of capita I and liquidity"

and stable "$1.00 share price."

34. At the time oft he 2007 Prospectus, the net assets of the Class TT and R shares

sold and held 98% by TD Ameritrade on behalfof its customers, were approximately S22

mil lion, and 85 million, respectively. Asa result of its aggressive sales, the July 28, 2008

Prospectus revealed that assets in those two classes had grown exponentially to $171 million

and $769 million, respectively.

35. The Prospectus contained untrue statements of material facts or omitted to state

other facts necessary to make the statements made not misleading and was not prepared in

accordance with the rules and regulations governing its preparation,

36_ The Prospectus contained statements that the Fund was not a money market

fund, but also represented the Fund's intention to maintain a $1.00 NAV, consistent with

representations by TD Ameritrade personnel that the Fund was just like a money market: fund.

37, The 2007 Prospectus represented the following about the Fund's business and

operations:

Investment Objective

The investment objective of the Fund is to seek as high a lave/ of currenti9sc a e as is cwItsh0elod with the preservadon of capital and f qu dity. T IS FUND

NOT A MONEY MARKET FUND. Investors can lose money by investing in (lieFund, They may also make money.

Principal Investment Strategies

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The Fund is a diversified mutual fund, designed as a convenient complementto the investment of tern porsry cash balances in short-term money market accounts orinstruments. WHILE THE I= UND 1 S NOT A L4 ONEY MARKET FUND, IT SEEKSTO MAINTAIN A STABLE 51.00 SHARE PRI'C'E. The Fund seeks to providehigher returns than money market funds and other short-term investments. Whileserving as an effective cash maiw ernenl solution for investors, the Fund isstructured to reduce or eliminate the problems of direct investing, such as schedulingmaturities, reinvesting proceeds, evaluating the credit quality of issuers, investing inround lots, and the safeguarding, receipt and delivery of securities. The Fund willseek to limit share price volatility by maintaining a dollar weighted average maturityof 90 days or less and by limiting the maturity of individual instruments to 24 monthsor less, except in the case of adjustable rate government obligations, which may havea longer ultimate maturity. In calculating portfolio ma(urity, the maturity of aninvestment will be considered to be the earlier of the instrument's maturity date, putdate or the next interest reset date. Shares of money market funds wiI l be consideredto have a maturity of one day.

Reserve Management Company. Inc. ('RMCI" or "Adviser"), the Fund'sinvestment adviser, rnanitors a range of economic and financial factors and, based onthat analysis, the assets of the Fund are invested in amix of U.S. dollar-denominatedsecurities that are intended to provide as high a return as passible without)eopardiziag the stabUity of the Fnnd's share price and witho"t violating Usla veslmenl po/rcy.

Suitability. Different investors have different investment goals. The Fund isintended to provide professional managemeift for your cash and shorter-wrotassess. It mainly seeks current income, liquidity and stability, 'Che Fund is notintended to be a balanced investment program.

The investment objective cf the Fund is to seek as high a level of currentincome as is consistent wifli th e preFervadon of capital and liquidlly. Achievementof this objective is not guaranteed. This investment objective may not be changedwithout the vote of majority of the outstanding shares orthe Fund as defined in theInvestment Company Act. The Fund seeks to inainfaZu a stable ,$1.00 share price.THE FUND IS NOT A MONEY MARKET FUND.

lnvesun nt in the Fund is not insured or guaranteed by the U.S. Government,Federal Deposit Insurance CorpDration ("FDIC") or any other government agency.Although the Fund seeks to preserve the value cfyour investment at S ,00 per share,it is possible to lose money investing in the Fund.

The Fund is a diversified mutua[ fund, and as such, under Section 5(b) oFtheInvestment Company Act, must have 75% of the value of its total assets in cash andcash items (including receivables), U.S. government securities, securities of other

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investment companies, and other securities for the purposes of this calculation limitedin respect of any one issuer to an amount not greater in value than 5%, of the value ofits total assets and to not more than 10% of the outstanding voting securities of suchissuer. The Fund may invest up to 25% of the value of its total assets without regardto this limitation. The board of Trustees may not change the Fund's diversificationstatus without a "Majority Vote" as defined below under "Investment Strategies andRisks," The Fund may invest more than 5% of its assets in securities issued byagencies and instrumentalities of the United States government. Up to 25% of theFund's assets may be invested in affiliated money market funds. The Fund intends toconcentrate, and normally invest at least 25 9 0 of its total assets, in commercial banks,savings institutions and foreign banks.

(Bold emphasis added; remaining emphasis in original)

38. On June 9, 2008, the Fund filed its Form N-CSR for the year ended March 31,

2008. It included a letter by B. Sent which stated in part:

The liquidity, mortgage and enhanced cash crisis knave provoked everyone —institutions, corporations and individuals — to question just how safe their cash reallyis, and it's about time.

They Reserve's invesimerrl philosophy of its money market and enhancedcash funds is counter-cultural to that of the vast majority of organizations thatspnnsorlrnanage virtually all these types of funds. They are not speclallsls in asstsrtmanagenrew, rather they primarily manage stook and bond funds, the focus of wh ichis the highest rate of return, not safety ofprincipal, liquidity and soundness of sleep,which has been the core of The Reserve since its inception nearly 40 years ago.

When we created the world's first money fund we clearly stipulated Ilse Ienelsdress define a money fend: sunclr'ly of principal, lrrraiediale liquidity, a reasonablerate of return — all while living minder life overarching rubric of Loring i<nweVorsirslo a sound sleep. TWs same Philosophy is applied to our Yield Plus Fund, an"enhanced cash" fund, which has eonfldendy weallsemd the dif rcall markelcondilions over flee past year. Enhanced cash funds are not rr one ffunds, rather theyare complements to money markei ,funds most ,suitable for an investors' mid leancash creeds.

The Yield Plus Fund, Class R shares had an average annual one-year netreturn of 4.86% for the period ending March 31, 2008 all the while maintaining its

1.00 NA V and provielr'erg dar'1y liquidity on demand without interruption. For thenet return for each of the Fund's share classes, please refer to the Financial Highlightsportion of the Notes to Financial Statements section of this report.

The cash enlrusled to as is your reserve resource* thatyou expect 10 be thereno maller what This is why we call ourselves The Reserve. Be you an individual,institution or a Fortune 500 company, this is your working capital to pay the rent, to

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finance inventory and receivables, to put food on the table, Tins is defoallely riotmoney to lake risks with, aly d rhal is exactly h ow if should he managed

We have been "accused" by some of asserting these tenets as if they weredogma to which The Reserve pleads: Gu i I ty as charged. If one focused on Me goalof e ec7ive cash management, the traths to accomplish It are sey,evident acrdunequivocal, and reaching for yield whi/e riskring principal, liquidity or peace ofmind is not among Iftem. Let us hope that this dance on the precipice will re-instillthe objectivity that is crucial to cash management in both the money managers andthe investors that have exhorted them to take a flyer. After all, how dangerous crkuldit be? It's only cash management.

Cash is the very lifeblood of every individual and organization, yet despite thecritical nature of cash, it is the least researched asset class, the results of which havecreated the current problems in the market place.

Thank you for your confidence in our Reserve. We never forget you haveentrusted us with your reserve(s).

(Bold emphasis added; remaining emphasis in original)

39. The 2008 Prospectus representations were substantial ly similar to those

in the 2007 Prospectus.

I. NATURE OFT HE FUND

40_ The Reserve Yield Plus Fund is one of series c^f funds that make up the

Reserve Short-Term Investment Trust. The Trust is registered under the 1940 Act as an open-

end management investment company. While the Fund is not technically classified as a

money market fund, it purportedly was designed to maintain a stable $1.00 share price, even

though the Prospectus notes there are no assurances a $1.00 share price will be maintained,

41. For purposes of daily operation and administration, The Trust treated the Fund

like other money funds. For example, the Fund was administered on a software platform

specifically designed for money market funds. The Reserve website characterized the Fund as

an enhanced cash fund.

42. The Reserve presented itself as being a money fund company. All public non-

SEC releases focused an its money market activities.

-17-


43, in the universe of 400 or more short-terra bond funds, the Fund appears to be

the only one tv promote a policy of maintaining a stable $1.00 NAV.

44. Based on investor group self-reporting via the Internet, investors tended to

have more than half c their respective portfolios in the Reserve Yield Plus Fund, which is

consistent with the common understanding of this Fund as being just like a money market

Fund.

VII. DEVIATION FROM INVESTMENT POLICIES FOR THE FUND

45. in 2008, The Investment Advisors received tai€lions of dollars in Fees for their

services advising the Fund,

46. The Investment Advisors are responsible for adhering to the Fund's stated

investment policies.

47. "Breaking the buck" is a historical anomaly for money funds designed to

maintain a stable 51.00 A . It almost never happens, and should never happen when the

fund sticks to the objective of maintaining a $1.00 NAV,

48. Maintaining a stable $ LOG NAV was so fundamental to the Reserve Yield Plus

Fund that the Reserve's entire computer platform was built upon this foundation.

49. The Investment Advisors to the Fund deviated from the Fund's stated

i nvest=nt po I ic i es by sacrificing preservation oFcapital and liquidity its pursuit of higher

yields. This deviation was exemplifted by Defendants permitting the Fund to accumulate an

unreasonable concentration in commercial paper, including commercial paper issued by

Lehman.

50. The ability to maintain the NAV at $1.00 was unrealistic because of the undue

weight by the Fund in risky investments geared toward seeking higher yield.

-Is-


51. The Fund's loss of principal is a result of the Defendants' deviation from the

stated investment policies, whereby Defendants sacrificed preservation orcapital and Iiquidity

in pursuit of higher }Melds,

5. By investing in riskier securities like Lehman commercial paper during the

Class Period, in order to increase yield, Defendants were able to increase the yields on the

Fund to retain current investors and attract now investors.

53. Defendants failed to disclose that in an effort to boost the yields c the Fund,

they had abandoned the stated objective and investment strategy of the Fund and were willing

to risk principal and liquidity by investing in risk} and less conservative securities to increase

yields.

54. The investors in the Fund were never given the opportunity to vote on this

change of objective.

55. De Pendants also misrepresented that they had adequate internal controls,

Despite the purported internal controls, Defendants caused the Fund to purchase and remain

invested in Lehman securities during the Class Period, without adequately addressing

Lchman's precarious Financial status.

56. According to the Prospectus, RMCT "monitors a range of economic and

financial factors and, based on that analysis, the assets of the Fund arc invested in a mix of

U.S. dollar-denominated securities that are intended to provide as liigh a return as possible

without jeopardizing the stability of the Fund's share price and without violating its

investment policy."

7, Defendants fai led to disclose during the Class Period that RMCI was not

actively monitoring a range of economic and financial factors that might impact the Fund, nor

was Rig CI investing in sec uriities selected to avoid jeopardizing the Fund's share price.

-19-


Rather, RMC[ continued to invest the Fund's assets in securities that were increasingly at risk

for default.

58. TD Ameritrade failed to provide the Prospectus to the Fund investors prior to

their purchase of the Fund.

VIII. FINANCIAL TURMOIL AT LEH MAN

59. From its inception in 1971, The Reserve and its Primary Fund historically

invested in very conservative assets such as government securities and bank certificates of

depcsit. The Fund also carried the highest possibie ratings from Moody s and "Standard

Poor's denoting safety and liquidity, a fact which RMCI highlighted in its promotional

materials. When the Reserve Yield Plus Fund was introduced in 2006, these same qualities

were Promoted by The reserve Defendants and the TD Ameritrade Defendants.

0. [n 2007 and 2008, however, the Bents began to purchase riskier commercial

paper issued by financial institutions, which were not suitable for "cash and snorter-term

assets ... intmded investors who seek...Iiquidity and stab ility+," including Lehman, Merrill

Lynch, and Washington Mutual. The higher yields paid by these securities, however,

generated attractive returns for f=und shareholders, and helped the Fund attract billions of new

dollars in investments, which in turn bolstered the management and advisory fees earned by

R CI and commission and transaction fees for TD Arneritrade.

61. The Reserve's and Reserve Yield Plus Fund's shining investment strategy, and

substantial increase in assets under management, had significant implications given R iCYS

status as a private famiiy-owned company. Unlike many other large mutual fund complexes,

RMC1, and the funds it advises, are not owned, or otherwise affiliated with, a large public

company or cornmercial bank with the resources to provide Financial support in the event a

portfolio security were to becoine impaired. To the contrary, in the event a Fund holding

-20-


declined in value to the point where it threatened the Fund's $1.00 NA V, the Funid's ability to

maintain a stable 1,00 NAV depended exclusively on the Bent family's ability and

wi IIingness to provide or secure capital—either personal resources, those of RMC 1, or from

some third party--to support the NAV.

62. While an investment adviser such as RMCI is under no statutory obligation to

provide financial support to maintain the $ I,00 NAIL of a distressed money market fund (or

money market-like fund), breaking the buck is a catastrophic development for a money

market fund and its shareholders. Historically, the money market fund sponsors have stepped

in to support the $1.00 NAV when needed. Although agreements to protect a fund's $1.00

NAIL can be implemented in a variety of ways, they gene ralIy require a fund adviser or other

third party to com mit financial resources to protect a fund's $1.00 per share NAV, e.g., by

providing the I"und with capital to maintain the $1.00 NAV, by providing capital to offset the

decline in value in the impaired see urity+, or by purchasing the impaired see urity out of the

portfolio. The Deserve Defendants and the TD Ameritrade Defendants were Fully aware orthe

devastating rep utational and business damage that would arise if a fund managed by The

Reserve and F MCI, in particular, broke the buck. To avoid this very result, in 2007, R CI

and the Beata had agreed to provide millions of dollars in credit support to maintain the $1.00

per share NA V c The Reserve Enhanced Gash Strategics Portfolio, LLC. a smaller non-

nPoney nrarke? fund that sought to maintain a $1.00 NAV,

63. Beginning in the summer of 2007, as economic conditions worsened. some

money market funds began to experience declines in the value ofsecurities held in their

portfolios. Many of the funds impleirented credit support agreements that allowed the funds

to maintain a $1.00 pee share NAV to avoid breaking the buck.

-21-


64. Defendants were aware that Lehman had been experiencing significant

operating difficulty due to its exposure to illiquid and significantly impaired assets, including

home mortgages and related derivatives.

S. For example, on August 22, 2007, Bloomberg reported as follows:

Aug. 22 (Bloomberg) -- The rising cost of credit tools its toll onLehman Brothers Holdings Inc., Accredited Home LendersHolding Co. and HSBC holdings Plc as the subprime mortgagefallout spreads through the economy.

Lehman, the biggest underwriter of U.S. bonds backed bymortgages, became the First Firm on Wall Street w shut itssubprime-lending unit and said 1,2D0 employees will lose theirjobs.

66. By January 2008, Lehman announced it would substantially reduce its

resources and capacity in the U.S. residential mortgage origination space.

67_ Throughout 2008, Lehman exhibited signs of financial distress that called into

question its ability to service its debt. ]n addition, Lehman's share price declined significantly

throughout 2048 and the firm's capital position weakened.

8. Faced with increasing difficulty raising capital, Lehman's commercial paper

paid increased yields reflecting irivestors' perception that such debt was riskier than other

assets of similar type and duration.

69, In effect, Lehman's debt obligations became high-risk securities that were

inappropriate for money funds seeking to preserve capital, Nonetheless, defendants held on to

them, during months when Lehman's precarious financial situation was front page news in

most major newspapers,

70. In f-arly M are h 2008, the price or Leh man common stock had plummeted

before the announcement of the meltdown at Bear Stearns.

-22-


71. In the spring of 2008, after Saar Stearns had collapsed and while Lehman was

widely considered to be the next victim ofthe ongoing banking crisis, the Reserve Short Tarn

Trust substantially increased the amount of money that it had invested in Lehman commercial

paper, It did so because these securities were paying liigher returns than other comparable

securities, which reflected the increased risk of investing in Lehman at the tiine. One trustee

of the Fund, WiIIiam Montgoris, was particularly concerned that the Fund not be exposed to

Lehman paper as "there had been speculation in the press and in the financial markets about

Lehman's financial situation almost from the day after Bear Steam was acquired by J.P.

Morgan Chase..."

72. 1n April and May 2008, the estimates and ratings for Lehman continued to fal I.

73. On .Tune 9, 2008, Lehman announced a huge second quarter loss, massive

write-clowns, and borrowing of billions o dollars in additional capital.

74. On July 28, 2008, Bloomberg ;dews reported that "[tIhe cost to protect

Lehman's debt from default more than doubled this year" as measured by the cost of u credit

default swap used to protect Lehman bonds. These costs were skyrocketing on news that

Lehman was exposed to massive amounts of risky and impaired mortgage-backed debt,

75. On August 19, 2DD8, the New York Tirnes ran stn article stadng that Lehman

Brothers, the troubled investment bank, is considering the sale of all or pail of its prized

money management division to private equity firms to raise billions or do) Iars of capital and

ease the pressure caused by losses related to real estate:

Lehman sent letters last week to a number of financial companies, includingprivate equity firms like Kohlberg, Kravis & Rnberts, C. Flowers, the BlackstoneGroup, the Carlyle Group and Apollo Management, to test interest in its moneymanagement division, according to several people briefed on its contents.

* m m

23-


Lehman now faces the capital-raising problem that haunted Merrill Lynch lastmonth. As the third quarter draws to a close, it is looking more likely that Lohmanwill have to write down the value of its mortgage and other investments to a degreethat could wipe out all of the investment bank's earnings. In the last 12 months, thestock is down 74 percent, compared with a 33 percent decline in the Amex XBDbroker dealer index, Earlier this summer, analysts expected Lehman Brother's to earna small third-quarter profit, but now some expect a loss of S 1.8 billion.

That forces Lehman to consider selling some of its more valuable assets. Asidefrom the potential sale of its investment management unit, Lehman is looking tooffload assets, including a portfolio of up to S40 billion worth of troubled wrnmercial

real estate assets, according to investors involved in that sale.

76, On August 29, 2008, the New Fork Times rant another article, entitled "For

Lehman, More Cuts and Anxiety," which said:

On Wall Street, the ax keeps falling again and again. As the financial industrylimps from one bleak quarter to the neat, bankers and traders who dodged painfullayoffs in the past year wonder if their luck is running out.

The issue gained now urgency on Thursday, as Lehman Brothers Wail Street'smost troubled firm, prepared to layoff up to 1,500 peoPle in its fourth round ofcutbacks this year. Those layoffs, which world amount to about 6 percent ofLehman's work force, are likely to come before the firm reports third-quarter resultsin mid-September, according to a Person briefed on the plan. The grim news atLehman underscores not only the precarious state of that once-proud firm but also thepain afflicting the whole of Mall Street.

77. On September 10, 2008, the View York Times ran another bleak article about

Lehman;

Stocks tumbled Tuesday after fresh concerns about the stability of LehmanBrothers Holdings touched off renewed jitters about the overall financial sector.

But worries about Lehman regained investors' attention. Its sliares lost nearly halftheir value Tuesday as investors worried that the company was having trouble findingfresh sources of capital.

-24-


78. On September 8 and 9, 2008, Lehman's stock price plurnrneted 52%. The next

day, September 10, 2008, Lehman announced a massive loss of $3.2 bi [lion for the 2008 fiscal

third quarter. On September 11, 2008, Lehman°s stock price plummeted another 42%.

79. By September 12, 2008, Lehman's financial situation had become desperate;

news sources were reporting that Lehman was undergoing a liquidity crisis and would need to

F1 either a willing buyer or a federal baitout to avoid bankruptcy.

I X. COLLAPSE OF THE FUND'S NAV

80, On September 16, 2008, The Reserve Fund, an entity related to the Deserve

Short-Term Trust, shocked the market when it issued a release concerning one of its money

market funds. The release announced in part:

The Board of Trustees of The Reserve Fund, after reviewing theunprecedented market events of the past several days and their impact on ThePrimary rund, a series of The Reserve Fund and taking into accountrecommendations made by Reserve Management Company, lnc,, the investmentmanager of The Primary Fund, approved the following actions with respect to ThePrimary Fund only:

The value of the debt securities issued by Lehman Brothers Hoidings, Inc.{face value $785 million) and held by the Primary Fund has been valued at zeroeffective as of 4:00PM Now York tirne today. As a result, the NAV of the PrimaryFund, effective as of 4:00PM, is 30,47 per share. All redemption requests receivedprior to 3:00PM today will be redeemed at a net asset value of $1.00 per share.

Effective today and until further noli , the proceeds of redemptions from ThePrimary Fund will not be transmitted to the redeeming investor for a period of up toseven calendar days after the redemption. The seven-day redemption delay will notapply to debit card transactions, ACH transactions or checks written against the assetsof the Primary Fund provided that any such transaction from an investor, individuallyor in the aggregate, does not exceed S 10,000.

SL Further, on September 16, 2048, the NA V of the Reserve Yield Plus Fund also

collapsed fro in $1,00 per share to close a[ $0.97 duc to its investment in debt securities issued

by Lehman.

-25-


82. 'thereafter, the Reserve Short-Terin Investment Trust suspended providing a

daily NAV on the Reserve Yield Plus Fund.

83. On October 9, 2008, the Reserve Short-Term Investment Trust issued a release

entitled "IMPORTANT NOTICE REGARDING RESERVE YIELD PLUS FUND" which

stated in part:

The Board of Trustees of Reserve Short-Term Investment Trust (the "Trust")announced today that it voted last evening to liquidate the assets of Deserve YieldPlus Fund ("Fund").

The Fund has initiated discussions with the staff of the Securities andExchange Commission to permit the Fund to pay redemptions on a period longer thanseven days.

The Fund cannot currently estimate when distributions to investors will bemade. However, the Board and the f=und's adviser are acting as exp-ed itious I y asmarkets permit to restore Iiquidity to investors. The markets for short-term securitiesremain illiquid except for short-term U.S. Treasuries. The Fund will liquidate assetsas soon as it can, but the Fund does not believe that it is in the shareholders' intereststo sell assets at lire sale prices. As developments occur, we will cornmuni^.atc themto investors.

We post oat our website each day the holdings of the Fund as of the close ofbusiness at the and of the previous business dny, as well as the maturit y schedule ofthe assets of the Fund and the nature of the holdings of the Fund.

84, On October 17, 2008, the Reserve Short-Tenn Investment Trust issued a

release entitled "Statement About The Reserve Yield Plus Fund," which stated in part:

As announced on October 9, The Hoard of Trustees of Reserve Yield PlusFund (the "Fund") has voted to liquidate the Fund. The Fund owned LehmanBrothers Holdings Inc, paper that was marked down to zero on September 1, 2008,which brought the net asset value per share of the Fund down to $0.97 where itremained as of October 16. The Fund is not a money market fund but rather a cashplus fund (categorized as a short-term bond fund by Morningstar), The Board is

orking on a liquidation plan, which w i11 ensure that all investors are treated fairlyand receive their money in the shortest time consistent with the timeline to realize thefair value: of the securities. We expect ilia[ the liquidation will occur in stages withproceeds distributed as securities mature or are sold. Currently the Fund's assets areapproximately $ 1,2 billion including $31 6 iniIIion in cash. We intend to beginmaking payouts as soon as practical.

_26-


In order to proceed, we must first move the Fund to a different computerplatform #Mat's able to account for a share price below $1.00. The need for thiscapability wasn't anticipated when the Fund was created. Flowever, the recentunprecedented events in the credit market require these changes.

We apologize for the delay in meeting redemption requests and will continueto provide periodic updates of our progress during this process.

Thank you for your patience.

85. On October 24, 2008, the Reserve Short-Term Investment Trust issued a

release entitled "SEC Grants Order to the Reserve Yield Plus Fund,,' which stated in part:

The U.S. Securities and Exchange Committee (S EQ today issued a temporaryorder (the "Order") permitting the Reserve Yield Plus Fund (the "Fund") totemporarily suspend all rights of redemption effective as of October 8, 2008, A copyof the Order is posted on The Reserve's website at The R.coin.

The Deserve sought the Order to ensure an orderly disposition of the securitiesof the Fund and to ensure that shareholders are protected during the period ofdisposition.

The Board of Trustees of the Fund announced plans to liquidate the Fund onOctober 9, 2008, after unprecedented events stemming from the bankruptcy ofLehman Brothers Holdings hic. led to an extraordinary number of redemptions. Thissituation was further exacerbated by the illiquidity in the credit markets due to theoverall crisis of confidence in the marketplace. The Fund held Lehman Brotherscvrn mere ial paper that was marked down to zero on September 16, 2008, whichlowered the net asset value per share to $0,97, where it remained as of October 23,2008.

The Board is working on a plan to affect [sic] an orderly liquidation, subjectto supervision by the SEC, which will ensure that all investors are treated fairly andreceive their money in the shortest time consistent with the timeline to realize the fairvalue of the securities.

We expect that the liquidation will occur in stages with proceeds distributed assecurities mature or are sold, We intend to begin making payouts as soon aspracticable. We will keep you informed of developments as they occur throughupdates pasted on our website.

The Reserve also wants to reassure investors that the Order won't affect theprogress and expected initial distributions for the Primary and U.S. GovernmentFunds.

four patience and understanding during these unprecedented times is greatlyappreciated.

-27-


S& On November 2, 2008, the Chicago Tribune published an article entitled "f=und

losses fuel customers' anger — Revenue-sharing deal raises questions of conflict," which

stated in part:

When Kyle Halkola walked into the TD Ameritrade office in suburbanSchaumburg this summer lie had a certified check in his hand and one thing on hismind.

With the financial markets threatening to irnplode, he just wanted a safe placeto park $850,000 in cash.

Halkoia had made the money over 20 years, buying and selling three homes itsSan Diego. When he landed ajob near Chicago, he pulled out his equity and plannedto buy a dream house for his wife and two young cliiIdren in the Northwest suburbs.

"This was money I bui It by giving 5100 extra to the mortgage each monthinstead of going out to dinner," the 46-year-old engirteer said. "This was scratchedand-earned money i didn't want to lose a penny of. "

Today, Halkvla is one c hundreds of angry TD Ameritrade customers whosealmost 1 billion in assets are frozen in a short-term bond fund called Deserve YieldPlus, a mutual fund managed by The Reserve in New York but largely distributedunder a revenue sharing agreement with TD Ameritrade in Omaha.

11ents say TD Ameritrade rnisrepresented the fund as either an ultrasafemoney market fund or sornething just as secure. And they have cried foul over therelationship between Ameritrade and The Reserve, suggesting it created a conflict cinterest.

The episode presents yet another chiI Iing example of how an unprecedentedfinancial crisis has exposed vulnerabilities in even the sa fest corners of the investrnentworld. But it also raises questions about how the mutual fund industry sells itsproducts and highlights the pitfalls investors can face if they don't pay close attention.

The issue has drawn the notice of the securities commissions in Massachusettsand Pennsylvania, which have launched Forinal investigations, officials said.Complaints from angry Field Plus shareholders seem to show "some sort ofmisrepresentation, ,' said Richard Kiehl, a compliance examiner with the PennsylvaniaSecurities Commission, though he noted the investigation has yet to show anythingconclusive.

The Reserve, which operates the nation's oldest money market fund, gainedglobal notoriety in September when its $785 million exposure to the Lehman Brothersbankruptcy caused its nagship Reserve Primary money market fund to "break thebuck" — industry parlance for falling below the fund's purchase price of 1 a share.

_28-


Money funds like Reserve Primary, which had about $60 billion in assetsbefore the crisis, are not supposed to lose money, and fund companies almost alwayspump in backup capita] if they do. But this time, The Reserve didn't have theresources to make up for its Lehman exposure, and the surprise failure touched off apanic in the money rmarkeI sector. That, in turn, contributed to a freeze in globalshort-term debt markets.

What got lost amid the broader fiasco, however, was that The Reserve's 1.1billion afield Plus fund also broke the buck and got locked down due to Lehman debtit bought in April. It dropped to a net asset value nf97 cents on Sept. 16, but TheReserve hasn't given out a daily net asset value figure since.

On Thursday, The Reserve finally announced a plan to distribute $26 billionto Deserve Primary investors, or about half their remaining principal. But after sevenweeps, Yield Plus investors are still waiting for a distribution plan and have no ideahow much they may have lost.

[n a statement Friday, The Reserve said a Yield Plus distribution plan is tieingreviewed by the Securities and Exchange Commission, But it also said "the timing ofdistributions is, of course, affected by market conditions and the maturity of securitiesin the Fund's portfolio,"

Asked why the firm has not calculated a of w net asset value for the fund, aspokeswoman said she could not comment.

TD Ameritrade has tried to help its clients with funds frozen in Reservemoney market funds like Primary and the International Liquidity fund by setting aside$36 million to backstop accounts.

Tn a telephone interview, TD Amer itrade Chief Executive Fredric Tomczyksaid these clients had a valid expectation that their principal would be preservedunder any circumstances, partly because of the nature ofa money market fund andpartly because the rtrrn `*sweeps" cash into these funds automatically betweentransactions,

Yield Plus investors, however, have received no such protections. Tomczykargued that those investors specifically chose the bond mutual fund because of itshigher yield and should have read the prospectus, which explained its higher riskprofile and provided no assurances against loss, unlike a money market fund.

The p rm has quietly extended some emergency low-interest loans to YieldP t u s clients secured by their principal in the fund. But, despite an outcry frominvestors like Halkola and Gray — near]y 500 of whom have organized on a Yahoomessage board — TD Arneritrade has held pat on extending any other aid,

_29-


"it is clear in all the disclosures that it is not a money market mutual funk"Tornczyk said.

Investors, however, claim other communications From The Reserve and TDAreritrade suggested otherwise.

For starters, the Yield Plus fund had many of the signature characteristics of amoney market fund. It allowed investors to move money in and out quickly andsought to maintain a $ f share price, which is unusual for a short-term bond fund.Moreover, clients said, when TD Ameritrade representatives recommended the fund,they highlighted its money market-like qualities, not its added risks, suggesting itprovided safety at a higher yield,

In a letter accompanying the fund's March 2008 prospectus, RcscrveChairman Hruce Bent explained in italics that Yield Plus was not a honey marketfund. Hut then he wrote that the Fund shares the firm's money market philesophy "ofhiring investors into a sound sleep, "

"The cash entrusted to us," Bent added, "is your reserve resource that youexpect to be there no matter what ... this is your working capital to pay the rent ...and to put food on the table."

investors on the Yahoo message board, however, claim TD Ameritrade had areason to push them into Yield Plus: a distribution agreement between The Reserveand TD Ameritrade that earns Ameritrade an undisclosed siice of fee revenue.

The distribution agmernent clearly got the job done. Assets in Mass R sharessold almost exclusively to TD Ameritrade clients shot from almost nothing in 2006 to$770 mill ion by Mardi of this year, public docurnerits show. Another classdominated by the 0rnaha firm shot from $2 million to $171 million.

Tontc7yk said that as a discount broker, TD Ameritrade has never"manufactured" its own funds or provided commissions based on selling anyparticular product. The firm's incentive system, he said, was designed "to bringassets into the organ izatian and retain them, not to push one product over another."As for whether the distribution agreement presents a con fl ict between firm and eIieni,Tomczyk said the contract was a standard one and that "an investment firm has tomake money in some way."

Don Phillips, managing director of Chicago-Lased Morningstar Inc,, saidrevenue sharing agreements are, indeed, ubiquitous in the industry but sti IItroublesome when it comes to dividing the interests of the brokerage firm and itsclients.

30-


"It's kind of creepy but it's the way s the industry operates," Phillips said.That's why it is crucial for investors to look out for themselves by reading theprospectus and asking queslions, he said.

8T. Then, on November 3, 2008, the Reserve Short-Term Investment Trust issued

a release entitled "Reserve Funds Update," which stated in part:

As part ofour commitment to keep investors informed, below are updates onvarious Deserve funds,

Yield Pius Fund

The Reserve Yield Plus Fund will be Iiquidated and is in the process ofdeveloping a Plan of Liquidation, which is subject to review by the SEC. The finalPlan of Liquidation will be posted to the website as soon as it becomes available. Indeveloping the Plan, we are trying to ensure that ail investors are treated fairly. Wewill also try to make distributions as quickly as cash becomes available.

An investment in lhe , funds is real insured or guaranteed by the FederalDeposit Insurance Corporation or any other government ugency^ AIthou h the unds.seek to _preserve the value o your investment at V.00 per share, it is possible io losemoney by investing in the rods. Money market yields may vary.

(Emphasis in original)

88, In or about September 2009, in a Petition to the SEC, investors in the Reserve

`field Plus Fund wrote-

Pursuant to section 22(c)(3) of the act of 1940 "no registered investmentcompany shall suspend the right of redemption or postpone the date of payment uponredemption except For such periods as the Commission may by order permit for theprotection of security holders of the company."

At the time the SEC granted this order, it stated that the order would be inaffect until "the markets are liquid to a degree that enables the fund to I iquidateportfolio securities without impairing the net asset value of the fund",

The Reserve now holds a significant amount of cash, and refuses to redeemour requests for payment of such cash despito the rnct that such redemption ►vi I notarfoct the net asset value. Instead the Reserve continues to collcci fees on those fundswhile we (the investors) are being violated by the ta i lure of the SEC to rescind theirorder made on September 17, 2008.

- 31-


We, the undersigned therefore demand that the order releasing The Deservefrom making redemptions now be rescinded as this order no longer protects theindividuals in the RYPQX fund but rather viaimizes us instead.

X. TD AMFRITRADE'S MARKETING OF THE FUND

89. TD Ameritrade is an aggressive discount broker. For example, it describes

itseIras follows in its most recent !Q- :

We are a leading provider oFsecurities brokerage services andtechnology-based financial services to retail investors and businesspartners. We. provide our services predominantly through theInternet, a national. branch network and relationships withindependent registered investment advisors ("RIAs'^. We believethat our services appeal to a broad market of independent, value-conscious retail investors, traders, financial planners andinstitutions.

90. TD Aineritrade's strategy during the class period was to grow its market share

and increase its share of its customers' assets under its control, as stated in its most recent 10-

K-

We intend to capitalize on the growth and consolidation of theretail brokerage industry in the United States and leverage our tow-cost infrastructure to grow our market share and profitability. Ourlong-term growth strategy is to increase our market share of totalassets in client accounts by providing superior offerings to long-term investors. RIAs and active traders.

91. TD Amcritrade earns commissions and transaction fees on clients' trades.

2. TD Ameritrade heavily promotes the products it sells to investors. As stated in

their most recent 10-K-

We intend to continue to grow and increase our market share byadvertising online, on television. in print and direct mail and onour own Web sites. We invest heavily in advertising programsdesigned to bring greater brand recognition to our services. Weintend to continue to aggresswely advertise our services. Fromtime to time, we may choose to increase our advertising tc targetspec ne groups of investors or t decrease advertising in responseto market conditions.

?-


Advertising for retail clients is generally conducted through Web

sites, financial news networks and other television and cablenetworks. We also pace print advertisements in a broad range ofbusiness publications and use direct mail adveirtising. Advertisingfor institutional clients is significantly less than for retail clientsand is generally conducted through highly-targeted media. We alsoutilize third-party partners to market our investor educationofferings at live events.

To monitor the success of our various marketing efforts, we use adata gathering and tracking system. This system enables us todetermine the type of advertising that best appeals to our targetmarket so that we can invest in these programs in the future.Add it ion aliy, through the use o f o u r database tools, we are workingto more efficiently determine the needs of our various clientsegments and tailor our services to their individual needs. Weintend to utilize this system to strengthen our client relationshipsand support marketing campaigns to attract new clients. Ourmethods and uses of client information are disclosed in our privacystatement.

3. TD Ameritrade marketed and sold the majority of shares of the Deserve Yield

1)1us Fund. For certain classes of shares, Iike retail shares with no minimum investment

(CLASS R), TD Ameritrade offered mare than 8% of the Fund shares in the c lass.

94. TD Ameritrade, through its agents and employees, actively marketed the Fund

as being just like a money market fund for purposes of maintaining a stable $1.00 NAV.

Among other things. TD Aineritrade represented to investors—bath oral Iy and

electronically—that the Fund was a money market Fund, or just like a money market fund, and

that the Fund's value would not 1hl I below the S 1.00 NA V.

95_ When prospective investors asked about money market funds, TD Arneritrade

provided information about the Reserve Yield Plus Fund. TD Ameritrade also promoted the

Fund as being "same as cash" with near-immediate liquidity+.

96. Even well after The Reserve announced that the Fwid `°broke the bLick" and TIC

Ameritrade disavowed any responsibility, TO Ameritrade's agents and employees continued

to describe the Fund as a "money market fund" in responding to worried investors.

-33-


7. By way of example, and a.5 reported through individual investors and Yahoo

nvestor Group pasts, "TD Ameritrade representatives have exchanged the foIIOwi]I&

correspondence with actual and prospective investors regarding the Fund:

07/25/07 Correspondence From TD Ameritrade:

RE: TD Arneritmde

From: <XXXX tdarneritrade. ccim>To: <XXXX...>Date: Jul 25 2007 - 1 1:52arn

1-li XXXX,

We do have u highermuney market role at 5.31 a} however, youwould have to have a rninimum of100,000 cash to qualify forv!r/s money markef und. Are you open to having TD Ameritrade

assisting you with managing your investment portfolio.

Please let ine know if I can be of lie Ip to you.

Sincerely,

XXXX

Branch Manager/Vice- PresidentTDAMER] T DE400 S. E Camino heal, Suite 10 D

San Mateo, Oa 94402Tel: 650-340-XXXXFax: 650-340-X

04/15108 Correspondence From TD AmeritradeRepresentative:

Pro m:'I'D A M FRlTRADE Apex apexcIientservicestdarneritrade. com>To: XXXX<XXXX{rr, yahoo.com>Sent: Tuesday, April 15, 2008 12:12:55 ASubject: Re. Other (I MM504136441 7LOK }

-34-


Dear XXXX,

Thank you for your e-mail. Before the Fed began cutting interestrates lrepeatedly the TDAM Class A was paying around 4.51/c,1fyou wish, 11fere is a money marker ,you can buy inia and sell outof with juv a 1 day settlement fr"me; it is also a no load, notransaction fee fund. The syrnbcl is RYPX; it is currentlyreceiving 3.81% interest. Please contact us by secured e-mail or byphone at $0-0-669-3900 if you need any further assistance.

To call us tall-free from outside the United States, please use theAT&T site, ww. .business. all.com/bt/ toIIfree, jsp, to locate youraccess number. Once you have an outside line, dint the AT8&Tdirect access number for your country. A prompt (or anAT&Toperator) will ask you to enter the toll-free number. Dial 500-368-36C8; there is no need to dial I to reach an Ameritrade ClientServices representative.

Sincerely,

Diehard L.Apex Client Services, TD AMERITlkADEDivision ofTD AMER1TRADE, Inc.

09/1710-8 Correspondence From TD AmeriIrade Represeutativeas Pasted on TDAhl board):

"R YP Xis u money market muYuaf ,fund. When a mutual fundtrade order is sent, the f 11 will not show in your account until [11hefollowing business day. When you place your trade, the order issubmitted to the fund company and will be executed after marketclose (if received before the order rule ff'tinar.). At that time, it willappear as fil I on the Order Status page For the current day, but inactuality it wi II be as of the day of the trade."

1vlike A of Apex Client Services at TD Arneritrade.

04115108 Correa ondence From TD AmeritradeRooresentative:

35-


Frorn TD A M ERITRADE Client Services<clientserviccs atdameritrade.corn>To XXXXXX [email protected] Fri, Sep 26, 2008 at 1.11 PSubject Re: Other (KMM586 18 71971..0KM)mailed-by tdameritrade.mm

Ms. XXXX,

YP Xr's a mntrey rtrarket multraf ,frutd. Goverriment reguiationslegally prohibit us from reimbursing market losses on this type ofproduct. As such, there is nothing we can do at this time. Pleaselet us know if you have any additional gtLestions.

Dustin E.Client Services, TD AMERITRADEDivision of TD AMER1TRADE. Inc.

10/13108 Correspondence From TD AmeritradeRepresentative.

From: TD AMER1TRADE Apex[mailto:apexclients services a tdaineritradc.com ]Sent: Monday, October 13, 2008 6:38 ATo: XXXXSubject; RE: Client services (KM M593975701 7LOKM )

Mr. XXXX;

Thank you for allowing me to assist you today. Mutual Fundshave different settlement periods. They can settle in one or threedays. RYP X was a money market mumaf fiend with a one daysettlement period. With any mutual fund, the proceeds are releasedFor trading upon entering the sell order. 1 f you need any otherinformation, you may respond to this email, contact ClientServices 24 hours a day at 800-669-3900 or request the MutualFund Dept (hours are from 8-530pm CST), We appreciate yourbusiness.

-36-


Debra B.Apex Mutual Tend InquiriesDivision of TD AMER1TRADE, Inc.

10/9/08 Correspondence From TD Amcritrade Representative:

Dear XXXX,

Thank you for your inquiry regarding the Reserve Yield P[us(RYP X) money market in your account. To discuss your moneymarket and xhe ongoing situation with the Reserve money markets,we request you please contact the Fixed Income Ouidance Croupat 1-500-934-4445. Also, you can visit the Reserve website atww.thcr.com.

Regards,Sheree T.Fixed Income Guidance groupA Division of TD Arneri trade, Inc.

10/14108 Correspondence From TD AmeritradeRepresentative:

From. TD AMER1TRADE Apex [rnaiIto:apexeIicntservicer c,@—]Sent: Tuesday, October 14, 2C0$ 5:26 PMTo: Charles J.Subject: > YP X Inquiry {KMM595712571 7LOKM)

Mr. J.,

I regret that we have no additional inlbrination concerningRYPQX other than what is listed in alerts on our Web site and thatof The Reserve. To date we have not been notified of any action tobe take [nI for individuals investing in Ails money market mutualfifad. As stated in the prospectus for the fund, all mutual funds arean investment and have the risk of loss oFprincipa1

Please watch our Web site and that of The Reserve(www.ther.com) for any new information concerning RYPX. TheReserve is not affiliated with TD AMERITRADE beyond being athird-party provider of investments.

Mark C,

Apex Client Services, TD AMER[TRADE

Division of TD AMERITRADE. Inc.- 37-


(Emphasis added)

8. TD Ameritrade also offered a virtual client service portal ("TED"), which

characterized the Fund as a money market fund and referred clients to TD Ameritrade's

money market page. The standardized client service response follows (Emphasis added):

You Asked: What is the status of Rif PQX [The Reserve YieldPlus Fund]

Ted: To learn more about our woney market choices, pleasecontact a Client Services representative. We can answer anyquestions you may have aL ut products and services available.[View Page]

Here's More: Money Market Fan d Informadon

(Emphasis added)

99. TD Ameritrade actively encouraged investors with large cash balances to

invest in the Fund. TD Ameritrade also actively encouraged retirees and other investors who

wanted to move their investments to cash to invest in the Fund. The Fact that TD Ameritrade

clients had disproportionately large investments in the Fund indicates that TD Ameritrade was

steering clients to the Fund.

100. TD Ameritrade trained its representatives to self the Fund to clients as a

guaranteed and safe money market fund that could not lose value below the $1.04) NA V. TD

Ameritrade representatives were also trained to target clients such as those who were

considering; transferring money market funds to competitors. As or pe former TD Ameritrade

representative acknowledges in a posting to the Fund's investor Message [hoard on Yahoo-

From- XXXX o.yahoogroups.corn, XXXX ?C @,..

1 am new to this group and have been reading articles andstatements regarding how RYP X was sold to clients. I am aformer TD Ameritrade Investment Consultant. I can attest to their

-38-


statements. I was trained to recommend RYP X to my;fiettts itsguaranteed, safe, monq market frcl:d that will never- go doWis invalue and break the 1.00 NA V. Many clients were looking totransfer !heir accounts out of TD Amerilrade dire to very lowmoney rtrarket yields (05%). In order to keep their bissiness, ivewere told to prrl them in R YP X, whfclt was paying over 5%.This is in violation of SEC rules and is unethical. I even invested asignificant amount of my own IRA account in RYPQX believing itwas guaranteed, TD Ameritrade needs to be held responsible Formisieading its own employees and putting the interest of the firmbefore its own clients in order to get a kickback Froin the Reserve n1213-1 Fees. Êinphasis added)

101. 7,D

Ameritrade made the same rnisrepre entations t:^ its investment advisor

clients. One investment advisor client explains this relationship in a posting to the Fund's

Investor Message Board on Yahoo:

From: X X X X <XXXX , yahoo.com>Subject: [RYPQX] Point of View from Investment AdvisorTo: rypgx@a yahooroups. camDate: Thursday, October 16, 2008, 2;11 I'M

[ am an investment advisor from the Northeast who uses TDAM asa custodain. 85 % of our clients (as well as all mcn}bers of my firm)have cxpQ5ure to RY?QX We used tfir's fund like a moneymarkel, as Hirtl is how It was also marketed to TDAHf v advisoryclientele. I wish l sti II had a copy of the presentation we sat in ongiven by the Reserve and TRAM soinetime in 2005 when RY?QXwas introduced.

[ certainly cannot say that we thought it was just like a moneymarket, as clearly, being investment advisors, "we should knavebetter". However, as someone }pointed out, the holdings ofRYPQX and the Primary were virtually identical. Additionally,the settlement for sales were less than a day; i.e., [ could sell aposition in RYPQX at 3 .59pm and have that cash avalable at9:30am the next day.

feel awful that l have put my clients in this situation; however,looking back, who would have thought this would have happened,

have used the Reserve's vehicles for years, and they alwaysprovided Ile ibie, cost efficient. above-average yields. My guess isthis will be the end or starting over point for them and it snakes mefeel sad. I really can't say that I ain not happy with the way they

_39-


have handled the situation. 1 have always been able to get throughto someone there, and they have always returned my calls, 1 do notreceive information any faster than anyone else, but 1 at least knowI have the same information as everyone else.

TDAM on the other hand, [ am very, very unhappy with. Likemany of you, once this settles, we will most likely be moving ourbusiness from them. They have done any and every thing they canto remove liability from themselves. Very cowardly. The onlyreason they are offering to cover $.03 on the dollar for the Primaryis because they used it as a sweep vehicle and know that theirhands are in the cookie jar on that one.

I would urge everyone, like I am my clients, family, andemployees, to remain cairn and patient. All the securites in thefund have value. La's let them mature and as such they candistribute the dollars. Dividends. I am guessing, will not be paidout. [ am Dk with that, as it is my assumption that they willremain in the fund.

At this point, t want to get a NA V back at closest to $1.00 as [ can.The results of the Primary fund distribution are critical to RYPQX.if its NA V ends up being lower than $1.00, RYPQ X will followworse, as not only did it have Leliman exposure, but Primary also.So, for RYPQX, double-domino exposure.

Lastly, I am sorry to hear that colleagues in my industry, if youcould call them that, sold or misrepresented this fund to individualinvestors. For that you surely have cause with TDAM, and i urgeyou to take it up with them!

(Emphasis added)

102. The Fund was also marketed as having same-day liquidity (i.e., Funds would be

available almost immediately after sell orders).

. TRUE FACTS

103. The true facts, which were omitted fro g the Prospectus, from TD Ameritrade's

sales program, and from other statements made by defendants during the Class Period, were

as follows:

(a) The Fund was no longer adhering to the stated objectives of preserving

-40.


capital, providing Iiquidity and stab ity, but in an effort to achieve greater yields was

pursuing riskier instruments;

) The Fund was purchasing sign f icant amounts of Lehman cominercial

paper between February and [March 2008. when the financial community was concerned about

Lehman's f inane ial solvency, aspeeially after Hear Steams collapsed in Match 24b8;

(c) The Fund was neither a money market fund nor just like a money

market fund for purposes of maintaining a safe and stable $1.00 NAV;

{d} The Fund was not designed to protect the $1.00 NAV, as were

traditional money market funds, and was thus significantly riskier than money market hands;

(e) The Fund's internal controls were inadequate to prevent defendants

from taking on excessive risk;

(f) TD Ameritrade fai led to disclose the extent c its relationship with the

Trust and the Fund, and the compensation that it received by placing CIass Meinbers' assets

into the Reserve Yield Plus Fund;

(g) The Reserve entities did not have sufficient resources to support

maintenance of a stable S 1.00 NAV; and

(h) TD Ameritrade had no intention to support the Fund or cominit its

resources to maintenance of a stable $1.D0 NAV.

104_ When the NAV fell below $1.00, the Trust had to changeover its entire

computer piatform to account for a share price below $1.00. According to the Trutt. the need

to account for an NAV below $1.00 was not anticipated before the Lehman ban kmptcy,

105. As or September 16, 2008, The Reserve: reported that the Fund's outstanding

shares were worth approximately $1.154 billion, and the Trust reported that the Fund°s

outstanding shares were worth approximately $1.158 billion. As of the filing of this first

-41-


amended complaint, the Fund made distributions of approx i mat ely the following amounts: (i)

$800 million on or about December 30, 2008; (ii) 5 18 5 iniI lion on or about February 26,

2009; and (iii) $60 rni11ion on or about Septernbcr 2-5, 2009.

Ij. LOSS CAUSATION

106. Defendants misrepresented that the Fund was a safe cash investment, that the

Fund was like a money market, and that the Fund focused c preserving capital and

maintaining a safe and stable S 1.00 NA, among other things. Furthermore, Defendants

concealed that the Fund was not adhering to its stated objectives of preserving capital and

maintaining a stable 51.00 NA V, that the Fund was investing in certain high-risk commercial

paper in order to boost yield and thereby retain current investors and attract new investors,

and that the Fund's internal controls were inadequate to prevent Defendants From taking on

excessive risk.

107. In truth, the Fund was not managed so as to protect and maintain a stable $1.00

NAV, as were money market Funds; thus, the Fund was significantly riskier than money

market funds. In controlling the Fund, Defendants were oat adhering to the stated objectives

of preserving capital and maintaining a safe and stable $1.00 N A V, but rather, 1n an effort to

achieve greater yields, they were pursuing riskier instruments. Moreover, the Fund's internal

controls were inadequate to prevent Defendants fain taking on excessive risk, In particular,

Plaintiffs' capital was subjected to substantial and unreasonable risks of loss from potential

debtor defaults on commercial paper obligations.

108. Those substantial and unreasonable risks of loss materialized when Lehman

filed For bankruptcy and the Fund wrote off the value cf its Lehman investments at the end of

the Class Period.

-42-


109. Asa result of the misrepresentations and oinissions alleged herein, Plaintiffs'

investments in the Fund suffered a material loss in value.

114. Defendants' unlawful conduct alleged herein directly caused the losses

incurred by Plaintiffs and the Class,

COUNT I

VIOLATIONS OF SECTION 11 OF THE 1933 ACTAGAINST RMCI, RESRV PARTNERS AND THE INDIVIDUAL RESERVE

DEFENDANTS

11 l . Except and unless otherwise indicated, Plaintiffs repeat and reallege each and

every allegation contained above. This Count is brought pursuarit to §11 of the 1933 Act, 15

U.S.C. 77k, on behalf of the Class, against the RM C I, Resr y Partners and the Individual

Reserve Defendants.

1 2, This Count does not sound iu fraud. All oFthe preceding allegations orfraud

or fraudulent conduct and/or raotive are specifically excluded From this Count. Plaintiffs do

not allege that the Individual )deserve Defendants or the other defendants had scienter or

fraudulent intent as to this Count, which are not elements of a 1 l claim.

113. The N-1A Registration Statement Far the Offering was inaccurate and

pin isleading, contained untrue statements of material facts, oinitted to state other facts

necessary to make the statements made not misleading, and orniued to state materinI facts

required to be stated therein.

114. The Reserve Short-Term Investment 'Trust is the registrant for the Offering.

The defendants narned herein were respvnsibIc for the contents and dissemination of the N -1 A

Registration Statement.

-43-


115. The Reserve and RMCI are the de facto issuers of the shares of the Reserve

Short-Term Trust, and are thus, strictly liable to plaintiffs and the Class ror the misstatements

and omissions. Resery Partners is the underwriter of the shares. 'rhe Individual Reserve

Defendants are the Officers of the, Trust and Issuer, acted in a similar Function as a director or

partner ofthe Trust and Issuer, or signed the Registration Statements. Dach of these

defendants were responsible for the contents and dissernination of the N-1 A registration

Statement_

116. None of the defendants named herein made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the N-I A

Reg istradon Statement were true and without omissions of any material facts and were not

misleading.

117. By reasons of the conduct herein alleged, each defendant violated, and/or

controlled a person who violated, 11 of the 1933 Act.

118. Plaintiffs acquired Fund shares pursuant or traceable to one of the N-1 A

Registration Statements for the Offerings.

119. Plaintiff's and the Class have sustained damages. The value of the Fund's

shares has declined subsequent to and due to defendants' violations,

IM At the time of their purchases of the Fund's shares, plaintiffs and other

members of the Olass were without knowledge of the facts concerning the wrongful conduct

alleged herein and could not have reasonably discovered those Facts prior to September 16,

0DS. Less than one year has elapsed from the time that p€aintiffs discovered or reasonably

could have discovered the facts upon which this complaint is based to the time that plaintiff's

filed their initial complaint. Loss than three years has elapsed between the time that the

-4-4-


securities upon which this Cc unt is brought were offered to the public and the time plaintiffs

filed their initial complaint.

121. Yand to the extant that indemnification on this Count is permitted bylaw and

public policy, then with respect to the challenged conduct, Plaintiffs assert this Count againsI

Resry Partners based solely upon its actions which constitute wilIfuI misFeasance, bad faith,

gross negligence ancVcr reckless disregard of its ob] i gat ion s and/or duties to the Reserve Short

Term Trust and the Fund. Alternatively, if and to the extent that indernnificalion on this

Gaunt is permitted by law and public policy, then Plaintiffs hereby assert that the untrue

statements of material fact contained in the Prospectus, and the omissions to state other

material facts therein, were made in reliance upon, and in conformity with information

furnished to the Reserve Short Term Trust and the Fund by Resr y Partners or on its behalf.

122. if and to the extent that indemnification on this Count is permitted by law and

public policy, then with respect to the challenged conduct, Plaintiffs assert this Gaunt against

the Individual Reserve Defendants based solely upon their actions which constitute willful

misfeasance, bad faith, gross negligence. or reckless disregard of the duties involved in the

conduct of such person's oif lee.

COUNT II

VIOLATIONS OF SECTION 12(A)(2) OF THE 1933 ACTAGAINST THE RESERVE SHORT-TERM TRUST, RESRV PARTNERS,TD

AERITRADE, INDIVIDUAL TD AM ERIT RADE DEFENDANTS , AND THEINDIVIDUAL DEFENDANTS

123. Except and unless otherwise indicated, Plaintiffs repeat and real Iege each and

every allegation contained above.

124. This Count is Drought pursuant to § ] 2(a)(2) of the 1933 Acton bchalFof the

Class, against Resry Partners, TD Arneritrade, Individual TD Ameritrade Defendants, and the

Individual Defendants.

-45-


125. This Count does not sound in fraud. All of the preceding allegations of fraud

or fraudulent conduct and/or motive are speciFically excluded from this Count. PIaintiITS do

not allege that the I ndividual Reserve Defendants or the other defendants had scien ter or

fraudulent intent as to this Count, which are not elements of a 12 claim,

126. These defendants were sellers and offerors and/or solicitors of purchasers of

the shares offered pursuant to and/or traceable to the Prospectus.

127. The Prospectus contained untrue statements of material facts, omitted to state

other facts necessary to make the statements made not misleading, and omitted to stake

material facts required to be stated therein. The Individual Defendants' actions o r so I 1c 1 tatio n

included participating in the preparation ofthe false and misleading Prospectus and

participating in road shows to market the Fund to investors. Resr y Partners, as the distributor

of the shares in the Offering, essentially acted as an underwriter. TD Arnedtrade's actions of

solicitation, and Individual TD Ameritrade Defendants ` actions of solicitation, included

providing investors w4h copies of the false and misleading Prospectus, or causing the

Prospectus to be provided to investors.

128. These defendants owed to the purchasers of Reserve Yield Plus Fund shares,

including pInintiffs and other Class members. the duty to make a reasonable and di Iigent

investigation of the statements contained in the Prospectus, to ensure that such statements

were tree and that there was no omission to state a material Fact required to be stated in order

to make the statements contained therein not misleading. Defendants, in the exercise of

reasonable care, should have known of the misstatements and omissions contained in the

Prospectus materials as set forth above.

129. Plaintill's and other members of the Class purchased or otherwise acquired

Reserve Yield Plus Fund shares pursuant to andfor traceable to the Prospectus.

.46-


130. By reason of the conduct alleged herein, those defendants violated, and/or

controlled a person who violated, 12(a){2} of the 1933 Act. Accordingly, Plaintiff's and

members of the Class who hold Reserve field Plus Fund shares purchased pursuant to and/or

traceable to the Prospectus materials have the right to rescind and recover the consideration

paid for their Fund shares.

131. Plaintiffs, individually and representatively, hereby offer to tender to

defendants those shares which plaintiffs and other Class members continue to own, on behalf

of all members of the Class who continue to own such shares, in return for the consideration

paid far those shares together with interest thereon, Class members who have sold their

Reserve Field Pius Fund shares are entitled to rescissory damages.

132. If and to the extent that indemnification on this Count is permitted by law and

public policy, then with respect to the challenged conduct, Plaintiffs assert this Count against

Resry Partners based solely upon its actions which constitute willful misfeasance, bad faith,

gross negligence and/or reckless disregard of its c 15 igat ion s and/or duties to the Reserve Short

Term Trust and the Fund. Alternatively, if and to the extent that indemnification on this

Count is permitted by law and public policy, then Plaintiffs hereby assert that the untrue


material facts therein, were made in reliance upon, and in conlorrnity with information

furnished tc the Rcservc Short Term Trust and the Fund by Ri^:sr y Partners or on its behalf;

131 ]rand to the extent that indemnification on this Count is permitted bylaw and

public policy, then with respect to the challenged conduct, Plaintifl's assert this Courtt against


inisfeasarnce, bad faith, gross negligence, or reckless disregard of the duties involved in the

conduct of such person's office,

- 47-


COUNT" III

VIOLATIONS OF SECTION 12(A) (2) OF THE 1933 ACT AGAINST TD AMERITRADEAND THE INDIVIDUAL TD A ERITRADE DEFENDANTS FOR COMMON SALES

PROGRAM

134. Except and unless otherwise indicated, Plaintiffs repeat and mallege each and


135. This Count is brought piusuant to 12(a)( ) of the 1933 Act on behalf of the

Class, against TD Ameritrade and the Individual TD Ameritrade Defendants.


or fraudulent conduct and/or motive arc specif icaIly excluded from this Count. Plaintiffs do

not allege that TD Aineritrade had scienter or fraudulent intent as to this Count, which are not

elements of § 12 claim.

137. TD Ameritrade and the Individual TD Ameritrade Defendants were sellers and

offerors andl^>r solicitors Df purchasers of the shares of the Fund,

138, TD Ameritrade made communications to investors, via telephone, a-mail,

and/or other means, in connection with the company's sale of shares of the Fund. Such

communications contained untrue statements of material facts, omitted to state other facts

necessary to make the statements made not misleading, and omitted to state material facts

required to be stated therein. The coma-tunications were part of a common sales program

designed to attract investors to invest in the Fund by representing the Fund as being just like a

money market fund with a safe and stable $1.00 N AV.

139. As part of the common sales program, TD Ameritrade agents and employees

were trained to target investors interested in money market funds, and they were trained to

coin municate, and did communicate, these common representations of the Fund as being jtist

like a money rnarket fund with a safe and stable $1.00 NAV.

-48-


140, TD Arneritrade and the Individual TD Ameritrade Defendants owed to the

purchasers of Reserve Yield Plus Fund shares, including Plaintiffs and other Class members,

the duty to make a reasonable and diligent investigation of the statements communicated as

hart of the company's common sales program, to ensure that such statements were true and

that there was no ornission to state a material fact required to be stated in order to make the

statements contain d therein not misleading. 'These defendants, in the cxercise of reasonable

care, should have known of the untrue statements and material omissions communicated

through the common sales program as set forth above,

141. Plaintiffs and other members of the Class purchased or otherwise acquired

Reserve field Plus fund shares pursuant to and/or traceable to the common sales program.

142, By reason of the condLict alleged herein, TD Aineritrade and the Individual TD

Ameritrade Defendants violated. and/or control led a person who violated, 12(x)(2) of the

1933 Act. Accordingly, Plaintiffs and members of the Class who hold Reserve Yield Plus

Fund shares purchased pursuant to and/or traceable to the common sales program have the

right to rescind and recover the consideration paid for their Reserve field Plus Fund shares.

143. Plaintiffs, individually and representatively, hereby offer to tender to TD

Arneritrade those shares which Plaintiffs and oilier Class mernbers continue to own, on behalf

of a I I members of the Class who continue to own such shares, in return for the cons iderationt

paid for those shares together with interest thereon. Class members who have sold their

Reserve Yield Plus Fund shares are entitled to rescissory damages,

-49-


COUNT IV

VIOLATIONS OF SECTION 15 OF THE 1933 ACT AGAINST RMCI, THE RESERVE,RESRV PARTNERS, TD A ERITRADE, THE riNDIVID UAL TD AMERITR,ADE

DEFENDANT , AND THE INDIVIDUAL RESERVE DEFENDANTS

144. Except and unless otherwise indicated, Plaintiffs repent and real lege each and


145. This Count is brought pursuant to §15 of the 1933 Act against RMCI, The

Deserve, Resry Partners, TD Ameritrade, the Individual I'D Ameritrade Defendants, and the

Individual Defendants.


or fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiffs do

not allege that the Individual Reserve Defendants or the other defendants had scienter or

fraudulent intent as to this Count, which are not elements of a § I l claim or a § 12 claim.

147. The Reserve controls RMCl. RMCI controls the Reserve Short-Terra

Investment Trust and/or the Individual Defendants.

148. TD Ameritrade, through its ownership of a substantial majority of (lie Fund

shares, and through its revenue sharing agreement with the Trust, control led the Trust and/or

the Individual Defendants,

149, Each of the Individual TD Arneritrado Defendants was a control person ol'TD

Ameritrade by virtue of his or her position as a senior officer c TD Amedtrade, The

Individual TD Ameritrade Defendants each had a series of direct and/or indirect business

ancVor personal relationships with the Individual Defendants.

150, Each of the Individual Ikcserve Defendants was a control person of The

Reserve, RMC1, and Resry Partners by virtue of his or her position as a senior officer of the

Reserve Short-Terra Investment Trust and a non-independent trustee of the Fund. The

- 50-


Individual Deserve Defendants each had a series ofdirect and/or indirect business and/or

personal relationships with other trustees and/or officers and/or major shareholders of the

Reserve Short-Term Investment Trust and the Fund. In addition, B. Bent, B. R. Bent, and A.

Bent are considered "controll i n g persons" c RMC I and Resr y Partners based on their direct

and indirect securities ownership.

151. RMCI, The Reserve, Resry Partners, TD Ameritrade, individual TD

Ameritirade Defendants, and the Individual Deserve Defendants are "control persons" within

the meaning of 15 of the 1933 Act.

152. Each of the individual Reserve Defendants was a culpable participant in the

viDiations of 11 and § 12 of the 1933 Act alleged in the Coijnt above, based on their having

signed or authorized the signing of the N-1 A Registration Statement, having sold or offered

far sale shares of the Fund, having caused distribution of the Prospectus materials, and/or

having otherwise participated in the process which allowed the Offering to be successfully

completed.

153. RM I, The Reserve, Resry Partners, TD Ameritrade, the Individual TD

Ameri trade Defendants, and the Individual Reserve Defendants knew or had reason to know

of the facts alleged herein giving rise to liability of the persons they controlled.

154. If and to the extent that indemnification on this Gaunt is permitted by law and


Resry Partners based solely upon its actions which constitute wiIIfuI misfeasance, bad faith,

gross negligence and/or reckless disregard of its obligations andlor dutics to the Reserve Short

Term Trust and the Fund. Alternatively, if and to [lie extent that indemnification on this

Count is permitted by law and public policy, then Plaintiffs hereby assert that the untrue


-51-



Furnished to the Reserve Short Term Trust and the Fund by Rcsry Partners or on its behalf.

155. if and to the extent that indernnification on this Count is permitted bylaw and


the Individuai Reserve Defendants based solely upon their actions which constitute willful

misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the

conduct of such person's office.

CDI1N'T V

VIOLATIONS OF § 10(8) OF THE 1934 ACT AGAINST DEFENDANTSRMCI, RESRV PARTNERS,

THE RESERVE, AND THE INDIVIDUAL RESERVE DEFENDANTS

156. Except and unless otherwise indicated., Plaintiffs retreat and rcallege each of

the allegations set forth above a5 if Fu ly set forth herein,

157. This Count is asserted against RMCI, Resry Partners, The Deserve, and the

[individual Deserve Defendants for violations of § 10(b) of the 1934 Act, 15 U.S.C. §78j(4),

and Mule IOb-5, 17 C.F.R. §240.10b-5, promulgated thereunder.

158. Prior to and throughout the Class Period, RMCI, Resry Partners, 'fhe Deserve

and the Individual Reserve Defendants, individually and in concert with others, directly and

indirectly, by the use of means or i n st rurnenta I itics of interstate commerce and/or of the rnai Is

and a national securities exchange, engaged and participated in a continuous course of conduct

that operated as a fraud and deceit upon plaintiffs and the Class; made various untrua and/or

mWeading statements of material facts and omitted to state material facts necessary in order

to make the statements made. in light of the c i re urn sta nces under which they were made, not

misleading; made the above statements with a reckless disregard for the truth; and employed

devices and artifices to defraud in connection with the purchasc and sale of Fund shares,

- 52-


which were intended to, and, during the Class Period, did: (i) deceive the investing public,

including Plaintiffs and other Class members, regarding, among other things, the f=und's

cc m p] iance w ith its stated investment po 1 i cies;, and (ii) cause plaintiffs and the Class to

purchase Fund shares that were impaired by concealed and unreasonable risks of loss for this

type of investment.

159. The Individual Reserve Defendants are liable as direct participants in the

wrongs complained or herein. Through their positions ol'contro1 and authority as officers of

the Fund and the Reserve short-Tenn Trust, the Individual Reserve Defendants named in this

Count were able to control and did control the content of the pubI is statements contained

herein and, with knowledge or in reckless disregard, they caused the above complained of

publ is statements to contain misstatements and omissions of material Facts as alleged herein.

160. Defendants RMCI, Resr y Partners, and The Reserve are liable for each orthe

materially false and misleading representations set forth therein, and for each omission of`

material fact, including each of the representations or material ornission5 of the Individual

Defendants, under the principles of respondew stspc3rior.

161. Plaintiffs' investments in the Fund lost vaIuc as a result ofthe defendants'

representations being untrue and as a result of the true facts being omitted by the defendants.

162. Plaintiffs and the Class have suffered damages in that Plaintiffs did not

purchase a true money market Fund, or even a cash Iund rn anaged to preserve capital, but a

much more risky Fund. As a result orthat added risk, the Fund value declined below S 1 _00

NAV, causing Plaintiffs' losses.

163. Tile, Individual Reserve Defendants acted with scicnter in that they k tic w that

the public documents and statements issued or dissenninatud in the naine of the Fund were

materially false and misleading; knew that Fiuch statements or documents would be issued or

5-


disseminated to the investing public; and knowingly and substantial ly participated or

acquiesced in the issuance or dissemination of such statements or documents as primary

violations of the federal securities law.

COUNT VI

VIDI.ATIONS OF 5 10 (B) OF THE 1934 ACS' AGAINST TD AMERI"TRADE AND THEINDIVIDUAL TD AM ERITRADI- DEFENDANTS

164, Except and unless otherwise indicated, Plaintiffs repeat and reallege each or

the allegations set forth above as if fully set forth herein.

165. This Count is asserted against. TD Ameritrade and the individual TD

Ameritrade Defendartts for violations of 1 0(b) of the 1934 Act, 15 U.S.C. §78i(b), and Rule

IOb-5, 17 C.F.R. §240. 10 b-S, prornuIgated thereunder.

166. Prior to and throughout the Class Period, TD Ameritrade, individually and in

ccncert with others, directly and indirectly, by the use of mcans or instrumentalities of

interstate commerce and/or of the mails and a national securities exchange, engaged and

participated in a continuous Course of conduct that operated as a fraud and deceit upon

plaintiffs and the Class; made various untrue and/or misleading statements of material facts

and omitted to state material facts necessary in order to make the statements made, in light of

the circumstances under which they were made, not inisleading; made the above statements

with a reckless disregard for the truth; and empioyed devices and artifices to de Fraud in

connection with the purchase and sale of Fund shares, which were intended to, and, during the

Class Period, did: (i) deceive i'laintifl"s and the Class regarding, among other things, the nature

of investments in the Fund; and (ii) cause Plaintiffs and the Class to purchase Fund shares that

were impaired by concealed and unreasonable risks of loss.

167. The 7'D Ameritrade Defendants are liable as direct participants in the wrongs

complained of herein. Through their positions of control and authority as officers of TD

-54-


Ameritrade, the Individual TD Ameritrade Defendants named in this Count were able to

control and did control the content of the public representations contained herein and, with

knowledge or in reckless disregard, they caused the above complained of public

representations to contain misstatements and omissions of material Facts as alleged hep6n.

168, Defendant TD Amed trade is liable as a direct participant of the wrong

complained of Herein. Through its position of control and authority and distribution of the

Fund, TD Ameritrade was able to control and did control the content of the public

representations and the coin mon sales prograwn desixibed herein and, with knowledge or in

reckless disregard, caused the dissemination of misrepresentations and omissions of material

facts as alleged herein.

169. Plaintiffs' investments in the fund lost value as a result of TD Arneritrade's

representations about the nature o the Fund being untrue, and as a further result of the true

risks vFinvesting in the, Fund being omitted from TD Aincritrade's common sales program.

170. Plaintiffs and the Class have suffered dainages in that Plaintiffs did not

purchase a true money market fund, or even a cash fund managed to preserve capital, but a

much more risky fund. As a result of that added risk, the Fund value declined below $1.00

NAV, causing Plaintiffs' losses.'

171. TD Ameritrade and the individual 'rD Aineritrade Defendants acted with

scienter in that it that the public documents and statements issued or disseininaled in the name

of the, Fund were materially false and misleading; knew that such statements or documents

would be issued cr disserninated to the investing public; and knowingly and substantially

participated or acquiesced in the issuance or dissemination of such statements 0 doe urnfnts as

primary violations oFthe federal securities law. TD Ameritinde and the Individual TD

Ameritrade Defendants Further acted with scienter in that it knowingly targeted potential

5-


investors interested in money market accounts for investments in the Fund, and trained its

agents and employees to market the Fund just like a money market fund that would not lose

value below a safe and stable $ I .GD NA V,

COUNT VII

VIOLATIONS OF X20 OF THE 1934 ACT AGAINST RMCI, RESRV PARTNERS, TDAMERITRADE, THE INDIVIDUAL TD AMERITRADE DEFENDANTS,

AND THE INDIVIDUAL RESERVE DEFENDANTS

172. Except and unless otherwise indicaited, Plaintiffs repeat and real lege each of

the allegations set forth above as if Fu ly set forth heroin. This Count is asserted against

RM 1, Resry Partners, TD Ameritrade, the Individual TD Ameritrade Defendants, and the

Individual Reserve Defendants for violations of 20(a) of the 1934 Act.

173. The Reserve directly or indirectly controls RMC1. RMCI directly or indirectly

controls the Deserve Short-Term Investment Trust and/or the Individual Reservc Defendants.

In addition, B. Bent, Q. R. Bent, and A, Sent are control Iing persons ofRMCI and Resry

Partners based on their direct and indirect securities ownership.

174. 3'D Ameritrade, through its ownership o F a substantial majority of the Fund

shares, and through its revenue sharing agreement with the Trust, controlled the Trust and/or

the Individual Reserve Defendants.

175. Each of the Individual TD Ameritrade Defendants controlled I'D Ameritrade

by virtue of his or her position as a senior officer, director or controlling shareholder of TD

Ameritrade.

176. By reason of'their status as senior off leers of the Trust and non-independent

trustees ofthe Fund during the Class Period, the Individual Reserve Defendants controlled the

Trust.

177. The Reserve, RMC1. I'D Ameritrade_ Individual TD Ameritrade Defendants.

and the Individual Reserve Defendants are- "control persons" within the meaning of 20(a) of

-56-


the 1934 Act. Because of their positions of control, these defendants were able to, and did,

directly or indirectly, control the conduct oFthe persons direct]y Iiable for primary violations

of § l O(b) of the 1934 Act, 15 U.S.C. §78j(b), and Rule 10-5, 17 C.F.R. §240,1 Db-5,

prornulgatcd thereunder,

178. At the time that the defendants made false and misleading statements and

omissions of malerial facts alleged above in violation of § 10(b) and Rule I Ob-5. the

defendants named in this Count either knew of, or recklessly disregarded, their falsity.

179. Each of the defendants in this Count had the power to control or influence the

particular transactions giving rise to the primary violations of § I O(b) and Rule I Ob-5 as

alleged herein, and exercised the same. Each of the defendants in this Count either directly or

indirectly induced the primary violations of I aw complained of herein.

180. By virtue of their positions as "controlling persons," the defendants in this

Count are liable pursuant to §20(a) ol'the 1934 Act.

181. Asa direct and proximate cause of the wrongful conduct set forth in this

Count, Plaintiffs and other members of the Class suffered damages in connection with their

purchases of Fund shares during the Class Period.

182, if and to the cxtent that indemnification on t1lis Count is permitted bylaw and

public policy, then with respect to the clhatlenged conduct, PlaintiW e, assert this Court against

Resry Partners based solely upon its actions which constitute willful misfeasance, lead faith,

gross negligence and/or reckless disregard of its obligations and/or duties to the Reserve Short

Term Trust and the Fund. Alternatively, if and to the extent that indcntnificatian on this

Count is permitted by law and public policy, then Plaintiffs hereby aSSert that the untrue


37-



furnished to the Reserve Short Term Trust and the Fund by Resr y Partners or an its behalf.

f83. if and to the extent that indemnification on this Count is perm fitted bylaw and

public policy, then with respect to the challenged conduct. Plaintiffs assert this Count against

the Individual Deserve Defendants based solely upon their actions which constitute willful


conduct of such persnn's office.

COUNT VIII

VI0LA'TION S OF S 13(A) OF THE IM0 AC's' AGAINST ALL DEFENDANT

184. Except and unless otherwise indicated, Plaintiffs repeat and reallege each of

the aI[egalicns set forth above as if fully set forth herein.

185. This Count is asserted against all defendants for violations of 13(a) ofthe

1940 Act.

186, The stated investment objective ol'the Reserve Yield Plus Fund wwi primarily

to preserve capital and liquidity and then to obi ain a higher yield when consistent with

preserving capital.

187_ Defendants did not obtain authorization from a majority of the Fund's

outstanding voting sharco hers prior to deviating From the Fund's invf stment policy with

respect to its objective. This deviation exposed investors to increased risk.

188. This deviation ultimately led to losses by Fund investors.

189, if and io the extent that indemnification on this Count is permitted by law and

public poi icy, then with respect to the challenged conduct, P lain tiM assert this Count agaIns[

Resry Partners based solely upon its actions which constitute willful misfeasance, bad faith,

-59.


gross negligence and/or reckless disregard of its obligations and/or duties to the reser ve Short

Term Trust and the Fund. Alternatively, iFand to the extent that indemnification an this

Count is permitted by lave and public poI icy, then Plaintiffs hereby assert that the untrue


material Facts therein, were made in reliance upon, and in conformity with information

furnished to the Reserve Short Term Trust and the Fund by Resry Partners or on its belialf.

190. If and to the extent that indeFnnification on this Count is permitted bylaw and

public policy, then with respect to the chat len gad conduct, Plaintiffs assert this Count against



conduct of such person's office.

C0tTN T IX

CLAIM FOP, BREACH OF FIDUCIARY DUTIES AND/ OR AIDING ARID ABETTINGBREACH OF FIDUCIARY DUTY UNDER DELAWARE LAW AGAINST ALL

DEFENDANTS

191. Except and unless otherwise indicated, Plaintiffs repeat and reaIlege each of

the a legations set forth above as if fully set fortlt lie rein.

192. This Count does not sound In fraud. All of the preceding allegations of Fraud

or fraudulent conduct and/or motive are specifically excIudcd from this Count. Plaintiffs do

not allege that these defendants had fraudulent intent as to this Count, which is not an element

oribis breach offidueiary duty claim being alleged ltcrein.

193. In particular, this Count is not based upon any untrue statement or omission of

materiai fact in connection with the purchase or sale ol'the Fund's securities, nor is it based on

any manipulative or deceptive device or contrivance in connection with the purchase or sale of

the fund's securities.

9-


194. Defendants have violated the fiduciary duties of care, loyalty, good faith and

independence owed to the members of the Deserve Yield Plus Fund, and have acted to put

their personal interests ahead of the interests of the Reserve Yield Plus Fund's members.

and/or have aided and abetted other delendants therein.

195. By the acts. transactions and course of conduct alleged herein, the Defendants

failed to exercise the care required, and breached tlieir duties of loyalty, good faith, and

independence owed to the inembers of the Reserve Field Plus Fund, and/or aided and abetted

other defendants therein. 'Phese Defendants breached their fiduciary duties by failing to

properly preserve the assets of the Deserve Yield Pius Fund and failing to invest the assets in a

manner that met with the FLind's investment objective,

196. By reason of the foregoing acts, practices and common course of conduct, the

defendants identified in this Count have failed to exercise ordinary care and diligence in the

exercise of their fiduciary obligations toward plaintiffs and the other members of the Class,

and/or have aided and abetted therein.

197. Asa result of the actions of defendants, Plaintiffs and the Class have been and

will be irreparably harmed in that they have not and will not receive their fair portion ofthe

value of the Reserve Yield Plus Fund's assets and have been and will be prevented from

obtaiiiing a fair prig for Choir shares.

198. With respect to the challenged conduct, this claim against Resr y Partners is

solely based upon its actions which constitute willful misfeasance, bad faith, gross negligence

and/or reckless disregard of its obligations and/nr duties to the Reserve Short Term Trust and

the Fund. Alternatively, the untrue statements of material fact contained in the Prospectus,

and the omissions to state other material facts therein, were made in rel iance upon, and in

- (I()-


conformity with information furnished to the Reserve Short Torn Trust and the Fund by

Resm Partners or on its behalf.

199. With respect to the challenged conduct, this claim against the Individual

Reserve Defendants is solely based upon their actions which constitute willful misfeasance,

bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such

person's office.

COUNT X

CLAIM FOR BREACH OF FIDUCIARY DUTIES AND/OR AIDING AND ABETTrN C,BREACH OF FIDUCIARY DUTY UNDER DELAWARE LAW

AGAINST TD AMERITRADE AND THE INDIVIDUAL TI] AMERITRADEDEFENDANTS

200. Except and unlesF, otherwise indicated, Plaintiffs repeat and reallege each of

the al legations set forth above as if fully set forth herein.

201. This Count does not sound in fraud. All of the preceding allegations Df fraud

or fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiffs do

not a]lege that these defendants had fraudulent intent as to th is Count, which is not an element.

of this breach of fiduciary duty claim being alleged herein.

202. In particular, this Count is not bused upon any untrue statement or omission of

material fact in ccnnection with the purchase or sale of the Fund's securities, nor is it based on

any manipulative or deceptive device or contrivance in connection with the purchase or safe of

the Fund's securities.

203. By the acts, transactions and course, of conduct alleged herein, Defendant TD

Ameritrade and the Individual TD Ameritrade Defendam have violated the fiduciary duties

of care, loyalty, good faith and independence owed to the members of the Reserve Field Plus

- 61-


Fund and have acted to }gut their personal interests ahead of the interests of the Reserve Yield

Plus Fund's inembers, and/or gave aided and abetted other defendants therein.

204. These defendants breached their fiduciary duties by putting'I'D Amerltmde's

own interests under the revenue sharing agrecrnent with the Trust, on the one hand, ahead of

the interests of TD Arneritrade clients in maintaining the sanctity of their working capital, ors

the other hand.

205, These defendants also breached their fiduciary duties by permitting The

Reserve Defendants' to invest in assets that were inappropriate for the investment objectives

of Class Members who purchased through TD Aineritrade, as well as inappropriate for the

Fund.

206. By reason of the foregoing acts, practices and common course of conduct, the

Defendants identified in this Count have failed to exercise ordinary care and diligence in the

exercise of their Fiduciary obligations toward Plaintiffs and the other members of the Class,

and/or have aided and abetted other Defendants therein.

207. As it result of the actions of Defendants, Plaintiffs and the Class have been and

will be irreparably harmed in that they have not and will not receive their fair portion of the

value of the Deserve Yield Plus Fund's assets and have been and wiII be prevented from

obtaining a fair price for their shares.

208. While investors have lost a material part of their investment,'CD Ameritrade

earned revenue from its involvement in the Deserve Yield Plus Fund under a revenue-sharing

agreement that it had with the Trust.

209. With respect to the challenged conduct, Defendant "I'll Amcritrade and the

IndividuaI TD Aineritrade Defendants also acted with willful misfeasance, bad faith, gross

negligence and/or reckless disregard of their fiduciary duties to the Reserve Short Term Trust,

-6 -


the Fund, and the clients to whore they sold shares of the Fund. Such misconduct warrants an

award of exemplary damages.

COUNT XI

CLAIM FOR UNJUST ENRICHMENT UNDER D>E:LAWARE LAWAGAINST ALL DEFENDANTS

210, Except and unless otherwise indicated, Plaintiffs repeat and reallege each of

the allegations set forth above as if fully set forth heivin.

211_ This Counl does not sound in fraud. All of the preceding allegations of fraud

or fraudulent conduct and/or motive arc specifically excluded from this Count, Plaintiffs do

not allege that Defendants had fraudulent intent as to this Count, which is not an element of

this unjust enrichment claim being alleged herein,

212. in particular, this Count is not based upon any untrue statement or omission of

material fact in connection with the purchase or sale of the Fund's securities, nor is it based on

any manipulative or deceptive device or contrivance in connection with the purchase or sale of


213. Defendants received money and financial benefits from Plaintiffs and the Class

in the form of invested capital and payment of professional fees and expenses. Defendants

have retained such money and financial benefits to the detriment of Plaintiff`s and the Class.

214_ Defendants' retention or money and financial benefits from Plaintiffs and the

Class was unjust by virtue ofthe acts, transactions and course of conduct alleged herein, In

exercising their professional obligations %vith respecl to members aF the Reserve YieId Plus

Fund, Defendants failed to exercise ordinary care and diligence, and breached their duties of

loyalty, good faith, and independence, and/or aided and abetted other Defendants therein.

Moreover. Defendants failed to properly preserve the assets of the Fund and failed to invest

the assets in a manner that rnet with the Fund's investment objective.

fs 3-


215. Asa result of the Defendants' actions, Ilaintiffs and the Class have been and

wilk be. irreparably harmed absent the requested relief, since Plaintiffs and the Clnss have not

and will not receive their lair portion oFthe value of the Deserve Yield Plus Fund's assets and

have been and will be prevented from obtaining a fair price for their shares. Thus,

Defendants' unjust retention of money and financial benefits from Plaintiffs and the Class

goes against the fundamental principles of justice, equ ity, and good conscience.

2I. With respect to the challenged conduct, this claim against Resr y Partners is

solely based upon its actions which constitute willful misfeasance, bad faith, gross negligence

and/or reckless disregard of its ob] i gad ons and/or duties to the Reserve Short Term Trust and

the Fund. Alternatively, the untrue statements of material fact contained in the Prospectus,

and the ornissions to state other raterial Facts therein, were made in reliance upon, and in

conformity with infotmation furnished to the Reserve Short Term Trust anti the Fund by

Resry Partners or on its behalf.

217. With respect to the challenged conduct, this claim against the Individual

Reserve Defendants is solely based upon their actions which constitute willful misfeasance,

bad faith, gross nesIigencc, c reckless disregard of the duties involved in the conduct 0Fsuch

person's office.

COUNT X11

CLAIM FOR UNJUST ENRICHMENT UNDER DELAWARE LAW AGAINSTTD AMERITRADE AND THE INDMDUAL TD AM ERITRADE DEFENDANTS

218. Except and unless otherwise indicated, Plaintiffs repeat and reallege each of

the allegations set forth above as if PuIly set forth herein.

219_ This Count does not sound in fraud. A II of the preceding allegations of fraud

or Fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiffs Flo

nol allege that Defendant TD Ameritrade or the Individual TD Arneritrade Defendants had

.04-


fraudulent intent as to this Count, which is not an element of this unjust end climent claim

being alleged herein.

220. 1a particular, this Court is not based upon any untrue statement or omission of

material fact in connection with the purchase or sale of the Fund°s securities, nor is it based on

any manipulative or deceptive device or contrivance in connection with the purchase cr sale of`


221. Defendant TD Ameritrade and the Individual TD Ameritrade Defendants

received money and financial benefits from Plaintiffs and the Class in the form of invested

capital and payment of professional tees and expenses. Defendants have retained such money

and financial benefits to the detrimant of Plaintiffs and the Class.

222. Defendants' retention of money and financial benefits from Plaintiffs and the

Class was unjust by virtue of the acts, transactions and course of conduct alleged herein. [n

exercising their professional obligations with respect to members of the Reserve `f ield Plus

Fund, these Defendants failed to exercise ordinary dare and diligence, and breached their

duties of loyalty, good faith, and independence, and/or aided and abetted other De Pendants

therein.

223. These Defendants were able to retain unjustly money and financial benefits

taken from Plaintiffs and the Class by putting TD Amerilrade's own interests under the

revenue sharing agreement with the Trust, on the one hand, ahead of the interests of TD

Aineritrade clients in maintaining the sanctity of their working capital, on the other hand.

??4. [n addition, these Defendants were able to retain unjustly money and financial

benefits taken from Plaintiffs and the Class by perrnitt1ng The Reserve Defendants' to invest

in assets that were inappropriate for the investment objectives of Class Members who

purchased through TD Arneritrade, as well as inappropriate for the Fund.

-65-


225. While investors have last a material part ofthear investrnent, and access to their

funds far over a year, TD Ameritrade earned revenue from its involvement in the Reserve

Yield Plus Fund under a revenue-sharing agreement that it had with the Trust.

226. As a result of the Defendants' actions, Plaintiffs and the Class have been and

will be irreparably harmed absent the requested relief, since Plaintiffs and the Class have not

had access to their hands For aver one year, and will not receive their Fair portion of the value

of the Reserve Yield Plus Fund's assets and have been and will be prevented from obtaining a

rair price for their shares. Thus, Defendants' unjust retention of money and financial benefits

from Plaintiffs and the Class goes against the fundamental principles oFjustice, equity, and

good conscience.

PRAYER FOR RELIEF

W1-1 ERE FO E, plaintiffs pray for rcIieFand judgment, as follows;

A. Determining that this action is a proper class action and certifying plaintiff's as

Class representatives tinder Rule 23 of the Federal Rules of Civil Procedure;

B^ Awarding compensatory damages in Favor of plaind ffs and the other Class

members against all defendants, jointly and severally, For a I I damages sustained as a result of

defendants' wrongdoing, in an amount to be proven at trial, including interest thereon,

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert Fees;

D. Awarding rescission or a rescissory measure of damages-,

E. Awarding exemplary damages against defendants TD Ameritrade and the

Individual TD Ameritrade Defendants; and

F. Such equitable/injunctive or other relief as deemed appropriate by the Court.

JURY DEMAND

-66-


DATED. Novernber 20, 2009 Respectfully submitted,

HA ENS BERMAN SOBOL SHAPIRO LLP

REED R. ICATHREIN (admitted pro hae vice)

Peter E. Borkon715 Hca.rst Avenue, Suite 202Berkeley, CA 94710Telephone: (510)725-300DFacsimile: (510) 725-3001

Steve W. Berman14A ENS BERIVIAN SOBOL SHAPIRO LLP1301 Fifth Avenue, Suite 2900Seattle, WA 98101

Lee M_ GordonHAGENS BERMAN SOBOL SHAPIRO LLP700 South Flower St., Suite 2940Los Angeles, CA 90017

Lead Counsel for the Reserve Yield Plus FundInvestor Group

Cl"i0E1* GOLD & SPORN, P.

1 ETRO 'VOLPI JR. C`D-4627)

Jay P. Saltzman (JS-7335)19 Fulton Street, Suite 406N York, NY 10038

Liasan Counsel for the Reserve Yield Plus FundInvestor Group

- 67-

Documents

hay,+^C^ 9 1 CLASS ACTIQN - Stanford Universitysecurities.stanford.edu/filings-documents/1041/RYPYX_01/20091120… · Case 1:08-cv-1 0261 -PGG Document 63 Filed 11/20/2009 Page 6