SEC Says Morgan Keegan Defrauded Thousands Of Auction-Rate Securities Investors
Morgan Keegan & Company has officially been charged by the Securities and Exchange Commission (SEC) of misleading thousands of retail and institutional investors about the liquidity risks of auction-rate securities (ARS). The SEC, which announced the charges against the Memphis brokerage on July 21, is seeking a court order requiring Morgan Keegan to repurchase the illiquid instruments from customers.
According to the SEC’s complaint, Morgan Keegan misrepresented auction-rate securities as a low-risk alternative to cash - an investment that could easily be redeemed if investors needed immediate access to their money.
Between Nov. 1, 2007, and March 20, 2008, Morgan Keegan sold approximately $925 million of auction-rate securities to clients. At the same time, the SEC contends Morgan Keegan failed to inform its customers about the increasing liquidity risks of the instruments, even after the firm decided to stop supporting the ARS market in February 2008.
“Morgan Keegan was clearly aware that the ARS market was deteriorating, but it went so far as to actually accelerate its ARS sales even after other firms’ ARS auctions began to fail,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “As we’ve done in our enforcement actions against other firms, the SEC is firmly committed to restoring liquidity to Morgan Keegan customers who purchased ARS.”
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