With trial set to begin next month, the Securities and Exchange Commission was dealt setbacks in its fraud case against the people and companies behind the Reserve Primary Fund, a money market fund that lost much of its $62 billion in value in 2008.

In a 13-page order Friday, U.S. District Judge Paul Gardephe in New York ruled the defendants can argue at trial that they relied on advice from Willkie Farr & Gallagher when they allegedly misled investors about the fund’s risks two years ago. Gardephe also denied an SEC request to present as evidence memos Wilmer Cutler Pickering Hale and Dorr prepared about RPF’s downfall.

The Reserve Primary Fund’s troubles began when Lehman Brothers filed for bankruptcy protection in September 2008, forcing the fund to mark down a $785 million investment it made in a Lehman debt security. The loss caused the fund to “break the buck” — to fail to maintain a stable $1 net asset value per share and start losing investor money. In the days that followed, the fund’s investors rushed to redeem their investments, wiping out more than half of RPF’s value.

In May 2009, the SEC brought a civil securities fraud case against the fund’s management company, Reserve Management Co. Inc., and two of its managers, Bruce Bent Sr. and his son Bruce Bent Jr., alleging their public statements on Sept. 15 and 16, 2008, duped investors into believing the fund was safe and secure. The SEC focused in particular on alleged misrepresentations that RMCI would provide credit support to keep the fund’s net asset value above the $1 mark.

Duane Morris stepped in to represent RMCI and the Bent family, and twice tried unsuccessfully to reach a settlement with regulators.

Trial has been set for Oct. 1 and is expecting to last three weeks. Bloomberg News reported Duane Morris partner John Dellaportas told Gardephe at a hearing last week that he may yet try to settle the case before trial.

If a settlement is in the works, the defendants’ bargaining position may have improved under Gardephe’s latest orders.

Over the SEC’s objections, the judge ruled the allegedly misleading public statements were based on advice from in-house counsel and outside lawyers at Willkie.

The SEC argued the defendants couldn’t have reasonably relied on Willkie’s advice because the firm’s dual representation of RMCI and the Reserve Primary Fund made it incapable of offering disinterested advice.

To bolster its position, the SEC noted RMCI has brought a malpractice case against Willkie alleging in essence that Willkie sacrificed RMCI’s interests in favor of the fund’s conflicting interests.

Gardephe rejected that logic, writing, “The commission offers no argument as to why the defendant’s interests and the funds interests would have diverged” on the disputed public statements.

Work Product

Gardephe also denied an SEC bid to present at trial a set of memos prepared for the defendants by WilmerHale in the wake of the fund’s collapse. Wilmer lawyers interviewed Willkie lawyers Joel Goldberg and Rose DiMartino about their advice to the defendants and made its memos available to both the fund’s managers and the Willkie lawyers.

The SEC maintains Wilmer waived work-product privilege by making the documents available to Willkie, a party in an adversarial position to RMCI because of its conflicting representation of both RMCI and the fund.

Gardephe wasn’t persuaded. “At the time the memos were shared, Willkie and Wilmer were working together in the defense of RMCI, related entities and the Bents in connection with the SEC investigation, and both had ethical obligations to these clients,” he ruled. “No waiver occurred.”

While the ruling is good news for the defendants in the SEC’s case, it doesn’t bode so well for RMCI’s malpractice suit against Willkie, which also is pending before Gardephe. He signaled he’s skeptical about the claim at the heart of that case: Willkie had a conflict of interest in advising both the RMCI and the fund.

RMCI is represented in the malpractice litigation by Kenneth Warner of Warner Partners in New York. Cahill Gordon & Reindel partner Thomas Kavaler represents Willkie.