Archive for the “Bond Funds” Category

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.

Consulting Services Group (CSG) is the latest investor to sue Morgan Keegan & Co. for losses suffered in several collapsed RMK funds. CSG filed its lawsuit on Dec. 22, naming Morgan Keegan, Morgan Asset Management, parent company Region Financial Corp., and James Kelsoe, former manager of the Morgan Keegan funds, as defendants. 

CSG’s complaint mirrors other lawsuits filed by hundreds of individual and institutional investors against Morgan Keegan and the bond funds. Among the laundry list of illegal actions that CSG cites in its lawsuit: Misrepresentation and suppression, fraudulent concealment, breach of fiduciary duty, intentional interference with business relationships and “negligent supervision and conspiracy in the underwriting, marketing and management” of the RMK Funds.

In addition, CSG alleges that Morgan Keegan and Kelsoe used “misrepresentation” and “fraudulent concealment” to keep CSG and its clients invested in the RMK funds even after Morgan Keegan reportedly knew the investments had become risky and were plummeting in value. 

“A complete collapse of the funds in the current market was only a matter of time,” the lawsuit reads. “By March 2008, the damage was done: All six of the (RMK) funds collapsed, causing many of CSG’s clients to lose most, if not all, of their investment.”

Losses in the Morgan Keegan funds have been significant, ranging from 51% to 86%.  Between March 2007 and March 2008, the funds lost $2 billion of their value. 

The six funds in question include the Regions Morgan Keegan Select High Income Fund, the Regions Morgan Keegan Select Intermediate Bond Fund, RMK High Income Fund Inc., RMK Strategic Income Fund Inc., RMK Advantage Income Fund Inc. and the RMK Multi-Sector Fund.

As reported Dec. 22 by the Memphis Business Journal, 78 cases involving the Morgan Keegan funds have been heard by arbitration panels with the Financial Industry Regulatory Authority (FINRA). Claimants in those cases have received approximately $7.6 million in awards. 

Memphis-based CSG provides investment advice to institutions, foundations, pension funds and wealthy investors. 

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.

A Morgan Keegan lawsuit involving 26 Alabama residents who allege the Memphis-based firm misled them about the risks of several collapsed RMK bond funds that invested in mortgage-backed securities is headed back to state court. The story was first reported Nov. 13 by Law360.

The investors initially filed their lawsuit in August, naming Morgan Keegan - a subsidiary of Regions Financial Corp. - and two of the brokerage’s financial advisers as defendants. The investors in the case are seeking $1 million in restitution, as well as some $3 million in punitive damages.

Morgan Keegan apparently opposed the move back to state court, according to the Law360 article, claiming the plaintiffs had relied on “legal gymnastics” to avoid referencing substantial issues of federal law - including the federally regulated mutual funds at the heart of the dispute - in their complaint.

Judge Myron H. Thompson of the U.S. District Court for the Middle District of Alabama disagreed with Morgan Keegan’s arguments and granted the plaintiffs’ motion to remand the suit last week.

The plaintiffs in the Alabama case are in the same boat as many investors who once placed their money in certain Morgan Keegan bond funds based on assurances that the bonds were safe and diversified investments. Instead, the funds were over-concentrated in risky mortgage-backed securities. In the summer of 2007, when the housing market began its downward spiral, several of the RMK bonds suffered a massive meltdown.

As reported earlier this summer by the Birmingham Business Journal, investors in the RMK funds cried foul, contending the “safe” investments that Morgan Keegan had sold them essentially were now worthless. Hundreds of arbitration claims against Morgan Keegan soon followed, along with several class-action lawsuits.

Morgan Keegan’s bonds were fat with some of the “worst pieces of structured finance deals,” on the market, said securities expert Craig McCann of Virginia-based Securities Litigation & Consulting Group in the May 1 Birmingham Business Journal 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.

Former Los Angeles Lakers player Horace Grant scored a big win on Sept. 11 when the Financial Industry Regulatory Authority (FINRA) ordered Regions Financial Corp.’s Morgan Keegan & Co. to pay Grant $1.46 million for losses he incurred as an investor in the brokerage’s risky bond funds.

The $1.46 million award is the largest arbitration loss to date for Morgan Keegan, which has hundreds of lawsuits still pending in connection to a group of mutual funds that collapsed during the height of the financial crisis. The funds in question include Regions Morgan Keegan Multi-Sector Income Fund, Regions Morgan Keegan High Income Fund, Regions Morgan Keegan Strategic Income Fund, and Regions Morgan Keegan Advantage Income Fund.

According to Grant’s complaint, Morgan Keegan failed to disclose the true risks of his investments, which were underpinned by mortgage-related holdings.

Grant’s win comes on the heels of several other recent victories by investors with claims against Morgan Keegan for losses in the bond funds. At least seven of the awards have cost Morgan Keegan about $3 million. One investor won $950,000 and two other investors were awarded $267,711 and $187,215, according to FINRA records.

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, hundreds of investors have filed claims with the Financial Industry Regulatory Authority (FINRA) over massive losses they sustained in a group of Morgan Keegan mutual funds that invested in high-risk mortgage securities. In a growing number of those cases, FINRA panels have ruled in favor of investors. Apparently unwilling to live with that outcome, however, Morgan Keegan is now asking a state court to overturn the rulings. 

Morgan Keegan filed its most recent motion to vacate - which means it is asking a judge to throw out the arbitration panel’s award decision - on July 22. In that case, Morgan Keegan wants the $220,000 award dismissed because it says the panel’s chairman, who previously sat on another arbitration panel that ruled against Morgan Keegan, should have been released from the panel.

Two other appeals were filed in May. On the first motion, which involves an award of more than $628,000 to two investors, Morgan Keegan accuses arbitrators of misconduct for not postponing a hearing during which the investors presented suitability claims. Morgan Keegan filed the second motion to vacate on grounds that the arbitration panel exceeded its authority in awarding more than $187,000 in damages, attorneys’ fees and costs, said Steven B. Caruso, the attorney for the investor, in an Aug. 4 article in the Wall Street Journal. 

Morgan Keegan’s strategy to file the appeals is unusual. Arbitration awards typically are binding, and appeals are difficult to win. Ultimately, the plan could backfire altogether for the brokerage.

“The strategy - and its delays - come with a price tag, said Caruso in the Wall Street Journal. “Who pays for it? The shareholders of Regions Financial.”

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.

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.

A July 14 story in the Wall Street Journal is reporting that Regions Financial Corp.’s investment arm, Morgan Keegan & Co., has received a Wells Notice relating to a group of mutual funds formerly managed by the Memphis-based brokerage.

According to the article, Regions received the Wells Notice on July 9 from the Securities and Exchange Commission (SEC). The notice states that investigators will recommend the SEC brings enforcement actions for possible violations of federal securities laws.

A Wells Notice is considered a precursor to a civil lawsuit, outlining what charges might be filed against a person or company. Regulators are not legally required to provide a Wells Notice; however, it is the practice of the SEC and the Financial Industry Regulatory Authority (FINRA) to do so.

The funds at the center of the SEC’s investigation include seven proprietary funds formerly managed by Morgan Keegan and which plunged in value in 2007 and 2008 because of the declining value of securities backed by subprime mortgages. The losses have since sparked a slew of lawsuits and arbitration claims by investors who say Morgan Keegan misrepresented the funds as containing safe, highly rated corporate bonds suitable for retirees and conservative-minded investors.

Some of the Morgan Keegan funds lost more than half their value when the housing market crashed in 2007, leaving investors with more than $2 billion in losses that year. Read a story in The Birmingham News about the funds and the legal actions investors are taking against them.

 In 2008, Regions transferred management of the funds to New York-based Hyperion Brookfield Asset Management. According to the Wall Street Journal article, Hyperion has so far not received a Wells notice in connection to the 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.

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.

The market for credit default swaps - complex derivative instruments invented by JP Morgan Chase & Co. in 1992 and today believed to be a key contributor to the onset of the nation’s financial meltdown - is sorely in need of a major overhaul. The trouble is the big participants in the market, including financial institutions and other special interest groups, apparently don’t want that to happen.

Credit default swaps initially emerged as a way for financial institutions to buy insurance against defaults on their corporate debt. Similar to an insurance contract, a credit default swap involves one party paying another party to protect it from the potential risk of default on a bond, loan, or other types of debt. If the loan or bond defaults, the insurer, or seller, compensates the buyer for the loss. Sellers of credit default swaps typically are banks, hedge funds or investment firms.

The market for credit default swaps is unregulated. Contracts for the swaps trade over the counter versus through the New York Stock Exchange. Lacking any oversight or regulation, the potential for financial disaster is great. As reported May 18 by Bloomberg, lax oversight of credit derivative instruments played a leading role behind the financial failures of powerhouse firms like Lehman Brother Holdings and American International Group (AIG), not to mention the $1.4 trillion in writedowns that banks have taken in the past year.

For more than a decade, however, these same investment banks have fought tooth and nail against government regulation of OTC credit default swaps. Why? Because credit default swaps contracts translate into huge profits for them. In 2008, JPMorgan reportedly took in $5 billion in profits from trading in fixed-income over the counter derivatives, according to the Bloomberg article.

Meanwhile, the rest of us are forced to wait out what appears to be an unrelenting and merciless financial crisis - a crisis largely triggered by the ticking time bomb known as credit default swaps. Defusing this ticking bomb with improved regulation and transparency is long overdue.

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.