Archive for the “ABS & CDOs” Category

Investors with losses in a group of ill-fated Morgan Keegan bonds emerged victorious recently in five out of six arbitration claims presented before the Financial Industry Regulatory Authority (FINRA). The decisions, which cover the months of May and June 2010, are related to a series of proprietary Morgan Keegan bond funds that made investments in speculative mortgage loans and toxic collateralized debt obligations (CDOs).

According to investors, Morgan Keegan marketed and represented the funds in question as safe investments that were suitable for low-risk investors. When the housing market crashed in 2007, however, the funds plummeted in value by as much as 80%. Investors meanwhile experienced enormous financial losses.

A slew of lawsuits and arbitration claims have been filed against Morgan Keegan, as well as against several of the company’s top executives. In the past year, evidence has continued to come forth to back up investors’ claims that the Memphis-based brokerage deliberately misled clients when it marketed and sold the bond funds.

Further affirmation came in April 2010 when the Securities and Exchange Commission, state regulators and FINRA charged Morgan Keegan and two employees - James Kelsoe and Joe Weller - with fraud for inflating the value of the risky securities held by the bond funds.

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 & Co. has lost an attempt to vacate a $1.46 million arbitration award involving former NBA star Horace Grant. On June 25, Judge S. James Otera denied the Memphis-based broker’s claims that arbitrators were biased when they initially ruled in favor of Grant.

The award to Grant, which included $1.45 million in compensatory damages and $10,000 in costs, was announced in September by a Los Angeles arbitration panel of the Financial Industry Regulatory Authority (FINRA).

Grant is among hundreds of investors who have filed arbitration claims against Morgan Keegan and six proprietary bond funds that were heavily invested in collateralized debt obligations (CDOs) and other mortgage-related securities. The funds declined in value by as much as 95% following the housing bubble burst.

According to many investors, Morgan Keegan marketed the funds as conservative investments appropriate for retirees looking to protect their principal.

In trying to have Grant’s award dismissed, Morgan Keenan said that one member of the arbitration panel - attorney Jonathon Schwartz - failed to reveal his background as an expert in recovering losses from collateralized debt obligations. The judge in the case, however, disagreed.

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.

Memphis-based broker Morgan Keegan must pay an investor $2.5 million for losses tied to several Morgan Keegan bond funds that made bad bets on mortgage-related securities. A Financial Industry Regulatory Authority (FINRA) panel announced the award decision on Feb. 19.

The panel found Morgan Keegan liable for negligence, failure to supervise and selling unsuitable investments to Florida investor Andrew Stein and his two companies.

Morgan Keegan has been the subject of numerous arbitration claims and lawsuits over six bond funds that were heavily invested in risky collateralized debt obligations (CDOs) and other mortgage-related holdings. The funds plummeted in value - some by as much as 90% - following troubles in the housing market.

As reported Feb. 22 by the Wall Street Journal, Stein’s $2.5 million award is the largest to date ordered against Morgan Keegan.

Stein’s claim against Morgan Keegan contained many of the same allegations previously citied by investors. Specifically, Stein and his companies alleged that Morgan Keegan failed to disclose the magnitude of risks associated with the funds until it was too late. Stein also alleged that Morgan Keegan artificially inflated the value of the funds’ assets in order to give the appearance they were more stable.

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.

In the wake of lawsuits and arbitration claims tied to investor losses in the Schwab YieldPlus funds, Charles Schwab Corp. announced on July 16 that its second-quarter profit fell 31%, as the brokerage firm’s revenue dropped 17%. Over the past year, San Francisco-based Charles Schwab has become the subject of hundreds of arbitration claims related to the Schwab YieldPlus Fund Select Shares (SWYSX) and the Schwab YieldPlus Investor Shares (SWYPX) funds.

Initially marketed and sold to investors in 2004, the Schwab YieldPlus funds were supposedly designed to mimic the investing style and risk factors of money-market funds. Far from a safe cash alternative, however, the funds were loaded with high concentrations of risky subprime securities and collateral mortgage obligations (CMOs) - investments that exposed investors to considerable risks, as well as substantial losses of their principal.

The risky investment composition of the Schwab YieldPlus funds ultimately compromised the liquidity of the funds, forcing Schwab managers to sell off asset-backed and mortgage-backed securities at distressed prices as more investors began to redeem their investments in the funds.

According to numerous complaints that have since been filed with the Financial Industry Regulatory Authority (FINRA), investors say that Charles Schwab not only misrepresented the diversification and risks of the Schwab YieldPlus funds but also ignored regulatory warnings dating as far back as the early 1990s about the risky and speculative nature of collateralized mortgage obligations. 

Adding to the legal saga of the Schwab YieldPlus fund is the fact that various executives of Charles Schwab, including former Schwab YieldPlus manager Kimon Daifotis, embarked on an aggressive but behind-the-scenes public relations campaign to avert liquidations in the fund by retail investors. At the same time, however, the company was unloading nearly 3 million YieldPlus shares from the portfolios of other proprietary mutual funds from Jan. 31, 2008, to April 1, 2008.

In the end, assets in the Schwab YieldPlus fund have plummeted from $13.5 billion in July 2007 to $162 million as of May 31, 2009.

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.

Business headlines are reporting the same story: Morgan Keegan, the brokerage arm of Regions Financial Corp., may face a civil lawsuit by the Securities and Exchange Commission (SEC) over the collapse of several mutual bond funds formerly managed by the Memphis-based firm. On July 15, Regions Financial acknowledged that the Atlanta office of the SEC had served a Wells Notice on Morgan Keegan, Morgan Asset Management and three unidentified employees.

“We knew it was just a matter of time before the SEC and probably other state regulators (brought) the hammer down,” said Indianapolis attorney Mark Maddox in a July 16 article appearing in the Memphis Daily News. Maddox is one of dozens of attorneys who has won arbitration cases against Morgan Keegan for investor losses in the mutual funds.

A Wells Notice is a letter issued by the SEC that advises a company or a person of the possibility of pending civil charges by the regulator. The letter itself outlines various violations that the SEC is contemplating and gives the company or the person receiving the notice a chance to argue against the potential action.

The Wells Notice concerning Morgan Keegan likely focuses on a group of proprietary mutual bond funds that plummeted in value following the onset of the mortgage loan crisis. The funds, known as the “RMK Funds,” contained large concentrations of lower-level tranches of risky structured finance products, including collateralized debt obligations (CDOs). Because of those risky holdings - a fact investors allegedly were never made aware of by Morgan Keegan’ s management - several of the funds lost 90% and more of their value in 2007.

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.

Securitization entered the financial mainstream 40 years ago, when mortgage lenders discovered there were big profits to be made by selling their home mortgages to Wall Street. Investment banks bought the mortgages in droves, converting them into securities and selling them to retail and institutional investors, pension funds, foundations and others.

The problem was the securitization market had little oversight and regulation. Disclosures and transparency were essentially non-existent, meaning lenders could unload almost any type of mortgage, including risky subprime mortgages. Meanwhile, Wall Street began to securitize other types of speculative debt, such as collateral debt obligations, auction-rate securities, credit derivatives and total return swaps.

The boom days of securitization came to a screeching halt in the summer of 2007, with the collapse of the mortgage market. As reported in a July 6 story by NPR, many believe the housing meltdown and the recession that followed would never have happened if the securitization market had been better regulated.

The Obama administration is now considering a major overhaul of the securitization market. Among the proposals on table: Requiring securitizers to hold on to a piece of whatever financial product they’re trying to sell to investors. In doing so, investment banks and other securitizers would assume some of the risk of their products and therefore might take more precautions - and much needed oversight - of those investments.

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.

Regions Financial Corp., whose investment arm Morgan Keegan is at the center of hundreds of lawsuits and arbitration complaints over a group of collapsed bond funds, says it has no plans to sell its Memphis-based brokerage - for now anyway.

Regions is responding to a loss analysis story that appeared last week in American Banker. The story intimated Regions could be forced to sell Morgan Keegan in order to secure additional capital.

In May, Regions announced plans to raise $2.5 billion in new capital to comply with government mandates relating to stress tests of U.S. banks. Less than a month later, Regions raised the necessary capital but only after deeply discounting bank shares by nearly 25% in a stock offering. According to the American Banker article, Regions may not be able to repeat that particular capital-raising scenario in the future.  

On July 1, Regions Financial stock closed at $3.97; one year ago, the stock was trading at $11.97.

As for Morgan Keegan, it has been on the losing end recently of recent arbitration awards concerning several proprietary high-yield funds that bought toxic waste assets. Losses in the funds-more than $2 billion between March 31, 2007, and March 31, 2008-ultimately were linked to highly risky and untested types of investments, including subprime mortgage securities, collateral debt obligations (CDOs) and other toxic debt instruments.

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.

For more than a year now, investors who lost up to 95% of their money in a group of collapsed mutual funds have been engaged in a full-on legal battle with Memphis-based Morgan Keegan as they try to recover their financial losses. The good news: Many investors are winning. In May, eight arbitration decisions were announced in their favor by the Financial Institution Regulatory Authority (FINRA).

As reported June 3, 2009, by the Memphis Commercial Appeal, Morgan Keegan accounted for nearly 16% of the 89 arbitration decisions announced last month by FINRA.

The litigation against Morgan Keegan involves several bond funds that plummeted in value following the onset of the subprime mortgage crisis. According to investors, Morgan Keegan deliberately misrepresented hundreds of millions of dollars of leveraged asset-backed securities as corporate bonds and preferred stocks to make the funds seem more diversified and less risky than they actually were. In truth, the funds were loaded with low-quality, high-risk collateral debt obligations (CDOs).

As a result of the alleged deception, investors in the Regions Morgan Keegan bond funds collectively sustained more than $2 billion in losses in 2007.

In 2008, Hyperion Brookfield Asset Management took over the management responsibilities for seven of the troubled Morgan Keegan funds. In January 2009, Hyperion changed the names of the funds to reflect its brand name, Helios. The funds include:

• Helios Select High Income Fund: HIFAX (Previously MKHIX)
• Helios Select Intermediate Income Fund: HSIBX? (Previously MKIBX)
• Helios Select Short Term Bond Fund: Remains as MSBIX
• Helios Advantage Income Fund: HAV (Previously RMA)
• Helios High Income Fund: HIH (Previously RMH)
• Helios Multi-Sector High Income Fund: HMH (Previously RHY)
• HMH Helios Strategic Income Fund: HSA (Previously RSF)

The latest legal victory for investors who suffered losses in the Morgan Keegan funds occurred on June 4 when a FINRA arbitration panel in Boca Raton, Florida, awarded $431,000 to Philip Richardson on his claim of “negligence” against Morgan Keegan for the sale of the RMK Select High Yield Bond Fund (MKHIX) and the RMK Select Intermediate Bond Fund (MKIBX).

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.

Despite the growing number of investor complaints and intense scrutiny by the Securities and Exchange Commission (SEC) over alleged mismanagement of certain bond funds, the CEO of Morgan Keegan & Co. continues to deny claims that the Memphis-based investment firm failed to make investors aware about the risks of various Morgan Keegan investments.   

In a May 19 interview in the Atlanta Business Chronicle, Morgan Keegan CEO John Carson took umbrage with the ongoing round of attacks against Morgan Keegan - attacks that are taking shape in the form of hundreds of arbitration claims and several class-action lawsuits by investors for losses they suffered in a group of Morgan Keegan mutual funds. In addition, the SEC recently put Morgan Keegan on notice that it plans pursue action against the firm for allegedly failing to inform clients about the risks of auction-rate securities. 

According to the Atlanta Business Chronicle article, Carson said in both instance Morgan Keegan was selling securities that had been liquid, but that their market value collapsed due to an unanticipated economic implosion in late 2007 and 2008.

Investors, however, may another opinion on the subject. Between March 31, 2007, and March 31, 2008, investors collectively lost more than $2 billion in a group of RMK bond funds. The losses in the funds were later traced to the underlying investments made by Morgan Keegan, a fact that many investors insist was never conveyed to them. The investments themselves included risky and untested types of subprime mortgage securities, collateral debt obligations (CDOs) and other debt instruments.

Hyperion Brookfield Asset Management now manages the funds.           

Meanwhile, Morgan Keegan is in legal hot water with several rural Tennessee municipalities, which contend the investment firm failed to disclose its business interest in selling bond derivatives. In addition to acting as an advisor and underwriter of the instruments, Morgan Keegan also resided over state-sponsored seminars on interest-rate swaps in which bankers from Morgan Keegan taught representatives from various Tennessee cities and counties about derivative financing

Tennessee securities regulators are investigating the matter.

Carson’s take on the Tennessee situation? According to the Atlanta Business Chronicle, he conceded only that Morgan Keegan was “guilty of political naiveté” and that the firm viewed the educational meetings as a “public service.”

Our affiliation of securities 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.

Structured finance products - the so-called safe alternative to riskier derivatives such as credit default swaps and collateralized debt obligations - were supposed to deliver healthy profits to investors, offering them an array of investing opportunities that carried minimal risks. Brokers eagerly pushed the instruments, wanting to cash in on the big commissions attached to their sales. Unfortunately for investors, a number of structured finance products failed to live up to their hype in 2008, with many suffering massive losses because of their ties to the financial health of troubled companies like Lehman Brothers Holdings.

As reported May 27 in the Wall Street Journal, structured finance products could be making a surprise comeback on Wall Street. According to the article, some brokers apparently are ramping up their efforts to sell the complex products to investors while they once again highlight their supposed safety factor as a key benefit.

Investors, however, might not be so eager to jump on the structured products bandwagon this time. Many are still reeling from last year’s debacle involving structured finance products, specifically reverse convertibles and principal protected notes. The latter investment in particular was responsible for causing millions of dollars in losses for investors after Lehman Brothers Holdings filed for bankruptcy protection in September 2008.

Two investors who poured their money into the Lehman principal protected notes were Jimmy and Jay Wang. According to the Wall Street Journal story, the brothers invested almost $70,000 in the notes - investments they thought to be one of the safest structured products available on the market. At least that’s how the instruments allegedly were described to the Wangs by UBS Financial Services, which sold them the notes.

Ultimately, following Lehman’s bankruptcy, the Wangs lost the majority of their investment in the Lehman principal protected notes. The two men have since filed an arbitration complaint with the Financial Industry Regulation Authority (FINRA) against UBS in an attempt to recover their money.

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.