Back in September 2008, the Reserve Primary Fund closed down when its shares "broke the buck" and fell below $1 per share. This was reportedly the first time that had occurred to a money fund in 15 years (and just the second time in US history), and was the result of the firm having invested almost $800 million in Lehman notes and commercial paper, which became worthless.

The misfortune at Reserve Primary led to a flurry of litigation, and ultimately presented the court with a tricky issue: Should the fund distribute its assets equally among all shareholders as suggested by the SEC (a return of at least 98.75% of funds invested) or should it first allow 100% payments to investors such as Deutsche Bank AG and E*Trade Financial Corp. that made withdrawal requests before the fund’s shares fell below $1?

On Wednesday, U.S. District Judge Paul Gardephe (SDNY) agreed with the SEC and ordered a pro-rata distribution of almost all the fund’s remaining assets. Gardephe said he will appoint a monitor or magistrate judge to oversee the distribution of money to shareholders, Bloomberg reports.

Following the court's ruling, SEC Chairman Mary Schapiro stated that the SEC was pleased with the court's order adopting the SEC's distribution plan. She said that the SEC's plan "provides an equal payout to all shareholders who have not had their redemption requests fulfilled, regardless of when they submitted those redemption requests," and avoids a situation where "shareholders would have been racing to obtain judgments against the finite pool of funds, possibly leading to conflicting judgments by different courts and tapping into a $3.5 billion pot that had been set aside by the Fund to cover litigation costs."