SEC Focuses on Morgan Keegan’s James Kelsoe And Bond Fund Meltdown

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.

This entry was posted on Friday, April 9th, 2010 at 1:07 pmand is filed under Bond Funds, Morgan Keegan Bond Funds, SEC Investigation. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.