First Trust Strategic High-Income Funds: The Morgan Keegan Connection
Birds of a feather flock together, or so the saying goes. Apparently in the case Ramond P. Mecherle and James Kelsoe it really is true. Mecherle is a managing partner at Valhalla Capital Partners, which serves as the co-manager of the First Trust Strategic High Income Funds. Kelsoe was the portfolio manager of the Morgan Keegan mutual fund disasters known as the “RMK Funds.”
Both the First Trust Funds and the RMK Funds are the subjects of ongoing arbitration claims and class-action filings by disgruntled investors who say the funds’ management used deceptive marketing practices to pass off risky subprime mortgage-backed mutual funds to them - funds that ultimately plummeted in value following the collapse of the housing market.
It turns out Mecherle and Kelsoe are connected, as well. Before he founded Valhalla Capital Partners, Mecherle was employed by Morgan Keegan Asset Management for seven years. During his tenure there, Mecherle held the position of assistant portfolio manager for three high-yield funds, including the Regions Morgan Keegan Select High Income Fund (MKHIX); the RMK High Income Fund (RMH); and the RMK Strategic Income Fund (RSF). Mecherle’s direct boss would have been the portfolio manager of those funds, which was none other than Jim Kelsoe.
Because of Kelsoe’s intoxication with high-risk financial products - i.e. collateralized debt obligations, collateralized mortgage obligations and collateralized loan obligations - thousands of investors ultimately lost millions of dollars after Kelsoe was forced to sell the illiquid assets in the RMK Funds at the worst possible time in order to meet a torrent of shareholder redemptions.
Many investors saw their retirement funds, savings for college and large portions of the future net worth vanish almost overnight. More important, the RMK Funds themselves were pitched as safe, secure and diversified funds. In reality, they were over-concentrated in highly vulnerable collateralized debt obligations and other risky debt - key facts that Kelsoe and Morgan Keegan failed to disclose to investors.
Now it appears the same scenario is being played out with the First Trust Strategic High Income Funds. The funds in question - which are collectively known as the “First Trust Funds” - include the First Trust Strategic High Income Fund (FHI), the Strategic High Income Fund II (FHY), and the Strategic High Income Fund III (FHO). According to recently filed class-action lawsuits and arbitration complaints, investors allege that the manager and advisors of the funds - including Ramond P. Mecherle of Valhalla Capital Partners - made false and misleading statements regarding the portfolio composition of the funds, as well as misstated the extent to which they were exposed to high-risk mortgage-backed assets.
As in the case of the RMK Funds, the combination of poor communication from the funds’ managers, combined with the large investments made in exotic and illiquid asset-backed securities, have caused individual investors in the First Trust Funds to sustain unexpected and massive financial losses. Had investors been told the truth about the funds - which were miles apart from the plain-vanilla, low-risk bond funds they thought them to be - they no doubt would have looked elsewhere for financial advice.
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.
