Clock Is Ticking For Morgan Keegan, Failed Bond Funds
Investors across the country are finally hearing from authorities what they privately believed for more than a year: Memphis-based Morgan Keegan misrepresented a batch of mutual funds that ultimately produced billions of dollars in losses because of close ties to the subprime mortgage market. Investors’ beliefs were confirmed earlier this month when Morgan Keegan’s parent company, Alabama-based Regions Financial Corp., disclosed in a regulatory filing that the Securities and Exchange Commission (SEC) was poised to bring formal charges against Morgan Keegan and its asset management unit over performance issues of the collapsed Morgan Keegan funds.
As reported July 31 by the Wall Street Journal, the presence of the Wells Notice is a positive sign for aggrieved investors in the RMK funds, since Morgan Keegan hasn’t voluntarily shared documentation concerning its valuation of positions in funds or email communication between those involved in management and operation of its mutual funds.
“That notification has to influence arbitrations when the issue of discovery of regulatory documents comes up,” said Steven Caruso, a New York attorney with Maddox Hargett & Caruso, in the article.
Since 2008, hundreds of investors have filed arbitration claims against Morgan Keegan and at least seven troubled bond funds (collectively known as the “RMK Funds”). The focus of investors’ claims concerns how Morgan Keegan characterized the bond funds as corporate bonds and preferred stocks. In reality, the underlying investments in the funds included high-risk and speculative investments such as subprime mortgage securities and collateral debt obligations (CDOs).
Those investments ultimately had catastrophic financial consequences on investors. Losses in the RMK funds reached more than $2 billion between March 31, 2007, and March 31, 2008.
Regions’ disclosure of the Wells notices suggests federal regulators are very close to taking action against Morgan Keegan for the problems related to the funds.
A Wells notice serves as formal notification that the SEC will bring civil charges.
In July 2008, Regions transferred management of several of the RMK funds in question to New York-based Hyperion Brookfield Asset Management.
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
