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.

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.

Investors with a Morgan Keegan lawsuit are finally getting their day in court. Recent decisions handed down by Financial Institution Regulatory Authority (FINRA) panels are ruling in favor of investors for their losses in several RMK bond funds that plummeted in value after Memphis based Morgan Keegan secretly gambled and lost with bets on subprime mortgage securities, collateral debt obligations (CDOs) and other risky debt instruments. 

During the past two months, FINRA has awarded investors more than $1.6 million for their claims against the embattled investment bank. The most recent award of $950,000 went to Jerome Woods, a former football player for the Kansas City Chiefs.

Woods’ win is the sixth consecutive win for investors. Moving forward, Morgan Keegan faces hundreds of additional claims from investors who collectively lost $2 billion between March 31, 2007 and March 31, 2008. Some of the Morgan Keegan bond funds in question have plummeted in value by as much as 95%.

At the center of investors’ claims are charges of misrepresentation and negligence on the part of Morgan Keegan. Specifically, the RMK funds that stumbled did so because of investments in high risk subprime mortgages and collateralized debt obligations, a fact that investors contend Morgan Keegan never disclosed to them.

Moreover, recent documents and testimony involving investor claims with FINRA show that Morgan Keegan apparently gave advanced notice to institutional clients and large retail clients to get out of the troubled funds ahead of small retail investors.

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. 

Investors keep scoring big in arbitration claims involving Morgan Keegan fraud. The latest win is by Jerome Woods, a former professional football player for the Kansas City Chiefs who just cinched a $950,000 arbitration award as a result of his claim with the Financial Industry Regulatory Authority (FINRA) against Memphis-based Morgan Keegan.

The decision in favor of Woods is FINRA’s largest award to date related to claims by investors for the financial losses they suffered in a group of Regions Morgan Keegan (RMK) mutual bond funds.

As in the majority of arbitration claims against Morgan Keegan, the basis of Woods’ complaint focused on the bank’s mismanagement of his investments, as well as Morgan Keegan’s failure to disclose the risks associated with various RMK bond funds. Specifically, the funds contained a high concentration of securities linked to risky subprime mortgages, loans and other speculative debt, a fact that investors say fund managers intentionally kept hidden. 

Investors who purchased the Morgan Keegan bond funds in question initially thought they were getting a diversified portfolio of relatively conservative corporate bonds and preferred stocks. Later, however, a compendium of evidence would reveal that neither Morgan Keegan’s management nor the informational documents on the funds accurately portrayed the true level of credit risk investors had taken on. It was only after the RMK funds plummeted by more than 60% on average in value that investors finally learned that Morgan Keegan had purchased high-risk, low-priority tranches of toxic collateralized debt obligations (CDOs).

Ultimately, Morgan Keegan’s misguided decisions caused investors to lose $2 billion from March 31, 2007 to March 31, 2008.

The massive financial losses have since spurred a wave of investor lawsuits and arbitration claims against Morgan Keegan. In addition to FINRA’s $950,000 award to Woods, other recent investor arbitration wins include $100,000 to Memphis sports broadcaster Tim McCarver; $267,711 plus interest to two California brothers; $187,215 to an Alabama retired couple; and$18,000 to Jo L. Wright, an Indiana church secretary. Investors in the latter two cases were represented by Maddox Hargett & Caruso.

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.

Some blame Wall Street. Others fault borrowers who overextended themselves. And some say the lead culprit behind the nation’s financial crisis is an accounting rule known as the Financial Accounting Standards Board’s Rule 157, or FAS 157. 

The purpose of FAS 157 is to give companies guidance on how to come up with market, or fair, values, for investments. This includes hard-to-value and exotic investments like collateralized debt obligations (CDOs) and other subprime-related debt. According to FAS 157, the assets must be valued at current market prices. 

And therein is the problem. In some cases, no market exists for these investments. Even without a market, companies must still assign a value to their assets accordingly. Sometimes that means marking the value down to fire-sale prices. 

Critics of FAS 157 say the rule is why investment banks have been forced to take billions and billions of dollars in write downs on losses related to CDOs and other “untouchable” investments.  

Proponents say FAS 157 brings more transparency to the market itself, strengthening the risk management practices of investment banks and publicly traded companies and giving investors clarity about the worth of their investments. 

Now the Financial Accounting Standards Board is preparing to vote on an overhaul of mark-to-market accounting rules. Under apparent pressure from lawmakers and financial banks, the board is proposing changes that will allow companies to use “significant judgment” when it comes to assigning value to their assets. In addition, the proposed changes will let companies reduce the amount of write-downs they must take on illiquid investments.  

In other words, companies will be able to handpick the values most appealing to them and put those that create further turmoil to their balance sheets on the backburner.  

As for investors, FAS 157’s proposed revisions not only create inconsistencies in valuations, but also will likely weaken an already waning confidence in Wall Street even further.  

A final vote on FAS 157 revisions is scheduled for April 2.  

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.