Archive for April, 2010

The professional career of Morgan Keegan’s James Kelsoe has come full circle. Kelsoe, known for his savvy Wall Street acumen, was sued by the Securities and Exchange Commission (SEC) on April 7 on allegations that he and several other Morgan Keegan execs recklessly published inaccurate information about a group of Morgan Keegan bond funds and then sold shares to investors based on the inflated prices.

The suit also names Morgan Keegan itself, as well as Joseph Thompson Weller, who heads Morgan Keegan’s Fund Accounting Department.

“This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds,” said William Hicks, associate director in the SEC’s Atlanta Regional Office.

The Financial Industry Regulatory Authority (FINRA) also is after Kelsoe and Morgan Keegan. Specifically, FINRA’s allegations focus on misleading sales materials, deficient internal guidance and the firm’s failure to train its brokers about the risks of the funds being sold to investors. Ultimately these actions led Morgan Keegan’s brokers to make material misrepresentations to investors, FINRA says.

Kelsoe, the former portfolio manager of the funds in question, is at the center of a multistate administrative action, too. Regulatory authorities in Tennessee, Alabama, Kentucky, Mississippi, and South Carolina have announced their intent to try and revoke the registration of Morgan Keegan and impose penalties for violating securities laws.

Hundreds of investors have cited Kelsoe in their lawsuits and arbitration claims, accusing both Kelsoe and Morgan Keegan of hiding certain risks and other information about their investments, as well as presenting the funds as “conservative” when, in fact, they were not.

Hyperion Brookfield Asset Management now manages the Morgan Keegan funds that are at the center of the state and federal probes.

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.

The Morgan Keegan fraud investigations may be creating concerns among current clients about the safety of their own accounts. In April, the Securities and Exchange Commission (SEC) filed a civil lawsuit against the Memphis-based broker, charging the company and top executives James Kelsoe and Thomas Weller of convincing staff members in Morgan Keegan’s accounting department of accepting 262 “price adjustments” in 2007 to hide the plummeting value of wrong-way bets on mortgage-backed securities and other risky investments.

The funds in question became such an impediment to Morgan Keegan that its asset management arm sold them in 2008 to Hyperion Brookfield Asset Management.

In addition to the SEC complaint, several states allege similar charges against Morgan Keegan. Meanwhile, thousands of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) in an attempt to recoup their financial losses.

In a recent letter to clients, Morgan Keegan executive John Carson tried to assuage concerns about the ongoing state and federal investigations. As reported April 14 by the Wall Street Journal, the letter, in part, stated the following:

“First and foremost, I want to reassure you of the safety of your accounts held with Morgan Keegan. . . These charges, which relate to a mutual fund management business that was sold in 2008, should not be construed as claims against the business of the firm as a whole.”

Carson went on to tell investors that the charges being leveled against Morgan Keegan were civil charges, not criminal, and therefore entirely different from the criminal case involving Bernie Madoff.

For investors who’ve lost some $2 billion in their Morgan Keegan investments because of an alleged cover-up regarding the true state of the funds, those sentiments are of little comfort.

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Investors in Wiregrass, Alabama, are suing Morgan Keegan & Co. after losing about $13 million in the RMK funds. The 100 investors thought they were buying supposedly safe-as-CDs investments. Only later did they learn - as did thousands of investors throughout the country - that the funds were backed by risky mortgage-related securities and other toxic structured financial products. When the financial crisis hit, the funds plummeted in value.

State and federal regulators filed fraud charges against Morgan Keegan and several high ranking company executives earlier this week. Among the allegations: Morgan Keegan misled investors and brokers about the risks of the funds and misrepresented their value.

One investor who lost big to Morgan Keegan is Georgia Smith. As reported April 9 by the Dothan Eagle, the retired teacher moved her money from reliable municipal bonds into other securities on the recommendation of a Morgan Keegan representative. She ended up losing her entire investment.

“They just sold us junk bonds; that was all,” Smith said in the article.

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.

Morgan Keegan’s James Kelsoe is known as a Wall Street financial guru. Now the former portfolio manager of several collapsed Morgan Keegan bond funds (RMK Funds) is at the center of fraud allegations by state regulators and the Securities and Exchange Commission (SEC).

The SEC, state regulators and the Financial Industry Regulatory Authority (FINRA) coordinated their filing of charges against Kelsoe, Morgan Keegan and Morgan Asset Management on April 7, accusing all three of misleading investors about the risks associated with a group of Morgan Keegan bond funds. Kelsoe is accused of allegedly ordering Morgan Keegan’s accounting department to overstate the value of the funds, which were supported by risky mortgage-related securities.

Collectively, investors have lost $2 billion in six of the Morgan Keegan funds, which include: Regions Morgan Keegan Select High Income, RMK High Income Fund, RMK Strategic Income Fund, Regions Morgan Keegan Select Intermediate Bond Fund, RMK Multi-Sector High Income and RMK Advantage Income Fund.

In addition to Kelsoe, the SEC is going after Morgan Keegan’s Joseph Thompson Weller. Weller, who was head of the Fund Accounting Department, is accused of “recklessly publishing” inaccurate information about the RMK funds and selling shares to investors based on the inflated prices.

“This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds,” said William Hicks, associate director in the SEC’s Atlanta Regional Office, in an April 7 story in the Memphis Flyer.

As for Kelsoe, he was at one time known throughout Wall Street as an investing wizard. In 2002, he told Bloomberg that part of the secret to his financial prowess was being able to properly value mortgage-backed bonds. Now, he’s being charged with falsifying the values of those mortgage-backed bonds.

“This scheme had two architects - a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund’s bogus valuation process,” said Robert Khuzami, the SEC’s director of enforcement, in a statement.

All of the allegations leveled on April 7 are civil matters, not criminal.

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.

Just as in the high-profile case involving two former Bear Stearns hedge fund managers, e-mails may be the smoking gun in the latest charges against Memphis broker Morgan Keegan & Co. On April 7, the Securities and Exchange Commission (SEC), five state regulators and the Financial Industry Regulatory Authority (FINRA) hit Morgan Keegan with enforcement actions in connection to several bond funds that have cost investors some $2 billion in losses.

FiNRA’s complaint focuses on the sales materials that Morgan Keegan used to promote the funds to investors - materials that FINRA alleges were “false and misleading.” In addition, the complaint cites several damning e-mail messages from Morgan Keegan executives.

As reported April 7 by the Wall Street Journal, in one e-mail dated May 15, 2007, Morgan Keegan’s director of investments (whom the complaint refers to as “GS”) states that he is worried about the risks of a fund’s exposure to asset-backed securities.

“Mr. & Mrs. Jones don’t expect that kind of risk from their bond funds,” GS wrote. “I’d bet that most of the people who hold that fund have no idea what it’s actually invested in. I’m just as sure that most of our [financial advisers] have no idea what’s in that fund either.”

It turns out that “GS” is Gary Stringer, director of investments for the Morgan Keegan’s Wealth Management Services division.

Another e-mail from Kim Escue, a fixed-income analyst for Morgan Keegan’s Wealth Management Services division, describes how her attempts to update the division’s research about one of the Morgan Keegan bond funds were thwarted by James Kelsoe and his assistants.

“They have let me sit for nearly three weeks with no comments, feedback, or information that I have requested,” Escue wrote in the July 2007 e-mail.

The states involved in the enforcement action include Tennessee, Alabama, South Carolina, Mississippi and Kentucky. All five want to bar Morgan Keegan from conducting business in their state.

In a separate action, the SEC has charged Morgan Keegan, Morgan Asset Management and two employees - former portfolio manager James Kelsoe and Joseph Thompson Weller, who headed up Morgan Keegan’s Fund Accounting Department - with fraud.

According to SEC’s complaint, Kelsoe and Weller failed to accurately calculate the net asset values for the funds, while Morgan Keegan “recklessly published” the inaccurate daily net asset values for the funds and sold shares to investors based on the inflated prices.

The SEC’s Enforcement Division further accuses Kelsoe of actively screening and manipulating the pricing quotes obtained from at least one broker/dealer. From at least January to July of 2007, Kelsoe had his assistant send about 262 “price adjustments” to fund accounting, the SEC said. In many instances, those adjustments were arbitrary and didn’t reflect fair value.

“This scheme had two architects - a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund’s bogus valuation process,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

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.

On April 7, the Securities and Exchange Commission (SEC), four states and the Financial Industry Regulatory Authority (FINRA) joined together to charge Morgan Keegan & Co. Morgan Keegan Asset Management and several employees of misleading of investors about the risks of several Morgan Keegan bond funds. In its complaint, the SEC alleges that the Memphis-based broker, along with former portfolio manager James Kelsoe, used fictitious securities values to make losses in the funds appear much smaller than they actually were.

The states’ administrative action seeks to revoke the registrations of both Morgan Keegan and Morgan Keegan Asset Management, prohibiting the companies from selling securities in Kentucky, Mississippi, South Carolina and Alabama. Tennessee also joined the lawsuit on April 8.

All five states are seeking unspecified administrative penalties and restitution for investors.

The focus of both the administration action and the SEC’s complaint is on six proprietary bond funds that lost approximately $2 billion dollars from March 31, 2007, to March 31, 2008. State and federal regulators contend that Morgan Keegan marketed and sold the funds to investors as conservative investments when in actuality the products were heavily concentrated in risky mortgage-related securities.

Morgan Keegan has since sold the funds to Hyperion Brookfield Asset Management.

Today, Morgan Keegan faces a slew of investor lawsuits. As reported by April 8 by the Business Courier of Cincinnati, 81 cases have been heard to date, with claimants seeking a total of about $47.9 million in damages. In those cases, Morgan Keegan has paid a total of $8 million to claimants.

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.