The accord, disclosed in papers filed late Friday in U.S. District Court in Manhattan, comes less than two weeks before the five-year anniversary of when the one-time $62 billion fund "broke the buck" after the bankruptcy of Lehman Brothers Holdings Inc.

"We are very pleased to have reached this hard-fought settlement, which is an excellent result for investors," said John Browne, a lawyer for the investors.

The class action lawsuit was filed soon after Reserve Primary Fund disclosed on September 16, 2008, that its net asset value fell below $1 per share.

The drop followed losses incurred on more than $785 million in investments in commercial paper and other debt issued by Lehman, which had filed for Chapter 11 bankruptcy protection the day before.

It was the first time in more than a decade that a money market mutual fund had "broke the buck." Those types of funds are designed to maintain a constant $1 per share net asset value.

The fund subsequently entered into liquidation. The U.S. Securities and Exchange Commission meanwhile sued Bent, his son Bruce Bent II, and two Reserve corporate entities, accusing them of making false statements to investors.

A federal jury in November 2012 cleared the senior Bent on all charges. Bruce Bent II was cleared of violating securities fraud laws but was found liable for a single negligent violation.

The jury found two of the Bents' companies, Reserve Management Co Inc and Resrv Partners Inc, liable of violating securities laws as well.

The class action, which was led by Third Avenue Institutional International Value Fund LP, named as defendants both Bents as well as Arthur Bent III, another of the senior Bent's sons, and three corporate entities including Reserve Management Co.

U.S. District Judge Paul Gardephe in September 2012 dismissed claims under state law and the Investment Company Act, but allowed various claims the defendants violated other federal securities laws to move forward.

Browne, a partner at Bernstein Litowitz Berger & Grossmann, said the settlement if approved by Gardephe will "ensure the prompt distribution to shareholders of substantial amounts of shareholder money that has been withheld from investors, and steadily depleted, for nearly five years."

As part of the class action settlement, the defendants will pay $10 million in cash to investors in the Reserve Primary Fund, which will be bring the fund's assets to $107 million.

The defendants, who continue to deny wrongdoing, will also give up more than $42 million of $72 million in claims they had asserted for indemnification, expenses and management fees against a court-ordered expense fund established to provide money to pay operational expenses of the Reserve Primary Fund.

As part of the accord, the defendants also will release claims against State Street Corp, allowing $2.5 million that the court previously ordered held back to be distributed to shareholders.

Richard Mahony, a spokesman for the Bents, said they were pleased to bring the case to a close. He said investors in Reserve Primary Fund have already received more than 99 percent of their investment from 2008.

"This class action settlement ensures they will receive even more," Mahoney said.

Under the settlement, up to $4 million in the court-ordered expense fund will be held back to cover future defence costs for the Bents and other defendants in the SEC lawsuit and other litigation.

The Bents and other defendants will meanwhile release claims against the independent trustees of Reserve Primary Fund for misappropriation of fund assets. A lawyer for the trustee did not immediately respond to a request for comment after normal business hours Friday.

Lawyers for the investors will also apply for up to $5 million in attorneys fees and reimbursement of $250,000 in expenses, according to court papers.

The case is In re The Reserve Primary Fund Securities & Derivative Class Action Litigation, U.S. District Court, Southern District of New York (Manhattan), No. 08-8060.

(Reporting by Nate Raymond in New York; Editing by Michael Perry)

By Nate Raymond