Archive for the “Morgan Keegan Bond Funds” Category

Just as in the high-profile case involving two former Bear Stearns hedge fund managers, e-mails may be the smoking gun in the latest charges against Memphis broker Morgan Keegan & Co. On April 7, the Securities and Exchange Commission (SEC), five state regulators and the Financial Industry Regulatory Authority (FINRA) hit Morgan Keegan with enforcement actions in connection to several bond funds that have cost investors some $2 billion in losses.

FiNRA’s complaint focuses on the sales materials that Morgan Keegan used to promote the funds to investors - materials that FINRA alleges were “false and misleading.” In addition, the complaint cites several damning e-mail messages from Morgan Keegan executives.

As reported April 7 by the Wall Street Journal, in one e-mail dated May 15, 2007, Morgan Keegan’s director of investments (whom the complaint refers to as “GS”) states that he is worried about the risks of a fund’s exposure to asset-backed securities.

“Mr. & Mrs. Jones don’t expect that kind of risk from their bond funds,” GS wrote. “I’d bet that most of the people who hold that fund have no idea what it’s actually invested in. I’m just as sure that most of our [financial advisers] have no idea what’s in that fund either.”

It turns out that “GS” is Gary Stringer, director of investments for the Morgan Keegan’s Wealth Management Services division.

Another e-mail from Kim Escue, a fixed-income analyst for Morgan Keegan’s Wealth Management Services division, describes how her attempts to update the division’s research about one of the Morgan Keegan bond funds were thwarted by James Kelsoe and his assistants.

“They have let me sit for nearly three weeks with no comments, feedback, or information that I have requested,” Escue wrote in the July 2007 e-mail.

The states involved in the enforcement action include Tennessee, Alabama, South Carolina, Mississippi and Kentucky. All five want to bar Morgan Keegan from conducting business in their state.

In a separate action, the SEC has charged Morgan Keegan, Morgan Asset Management and two employees - former portfolio manager James Kelsoe and Joseph Thompson Weller, who headed up Morgan Keegan’s Fund Accounting Department - with fraud.

According to SEC’s complaint, Kelsoe and Weller failed to accurately calculate the net asset values for the funds, while Morgan Keegan “recklessly published” the inaccurate daily net asset values for the funds and sold shares to investors based on the inflated prices.

The SEC’s Enforcement Division further accuses Kelsoe of actively screening and manipulating the pricing quotes obtained from at least one broker/dealer. From at least January to July of 2007, Kelsoe had his assistant send about 262 “price adjustments” to fund accounting, the SEC said. In many instances, those adjustments were arbitrary and didn’t reflect fair value.

“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, Director of the SEC’s Division of Enforcement.

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.

On April 7, the Securities and Exchange Commission (SEC), four states and the Financial Industry Regulatory Authority (FINRA) joined together to charge Morgan Keegan & Co. Morgan Keegan Asset Management and several employees of misleading of investors about the risks of several Morgan Keegan bond funds. In its complaint, the SEC alleges that the Memphis-based broker, along with former portfolio manager James Kelsoe, used fictitious securities values to make losses in the funds appear much smaller than they actually were.

The states’ administrative action seeks to revoke the registrations of both Morgan Keegan and Morgan Keegan Asset Management, prohibiting the companies from selling securities in Kentucky, Mississippi, South Carolina and Alabama. Tennessee also joined the lawsuit on April 8.

All five states are seeking unspecified administrative penalties and restitution for investors.

The focus of both the administration action and the SEC’s complaint is on six proprietary bond funds that lost approximately $2 billion dollars from March 31, 2007, to March 31, 2008. State and federal regulators contend that Morgan Keegan marketed and sold the funds to investors as conservative investments when in actuality the products were heavily concentrated in risky mortgage-related securities.

Morgan Keegan has since sold the funds to Hyperion Brookfield Asset Management.

Today, Morgan Keegan faces a slew of investor lawsuits. As reported by April 8 by the Business Courier of Cincinnati, 81 cases have been heard to date, with claimants seeking a total of about $47.9 million in damages. In those cases, Morgan Keegan has paid a total of $8 million to claimants.

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.

There’s a new twist in the legal debacle over six Morgan Keegan proprietary bond funds - i.e. the RMK Bond Funds - that suffered massive losses due to overexposure in risky mortgage-related securities. Last week, a Tennessee court vacated an arbitration award that had previously been decided by a Financial Industry Regulatory Authority (FINRA) panel in favor of an investor and his claims against the Memphis-based broker.

The reason for the Tennessee court’s decision reportedly had to do with bias on the part of two FINRA arbitrators who ruled against Morgan Keegan in a similar case involving the bond funds.

Ultimately, the court’s decision could spell big headaches for FINRA in the future. So far it’s been standard practice for arbitrators who are familiar with claims involving Morgan Keegan and the specific group of bond funds to reside on multiple FINRA arbitration panels. That could change in light of Tennessee’s recent decision to vacate a prior FINRA award, creating a flood of new motions filed to request that FINRA remove any arbitrator who has sat on previous panels involving similar claims.

The funds involved in investors’ claims against Morgan Keegan include the Select Intermediate Bond Fund; Select High Income Fund; RMK High Income Fund; RMK Strategic Income Fund; RMK Advantage Income Fund; and the RMK Multi-Sector High Income Fund. Among other things, investors allege that Morgan Keegan represented the funds as safe and secure, as well as an investment designed to provide opportunities for high income without high risks.

Contrary to those characterizations, the Morgan Keegan bonds were heavily invested in risky collateralized debt obligations and other mortgage-related securities.

As reported Feb. 23 by the Wall Street Journal, FINRA has received more than 400 arbitration claims against Morgan Keegan and the six bond funds. Earlier that same month, a FINRA arbitration panel awarded $2.5 million to an investor for his claim involving the Morgan Keegan funds. It is the largest amount awarded thus far in response to investors’ claims over losses in the RMK funds.

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Legal expenses have skyrocketed for Morgan Keegan & Company, the Memphis-based broker that has been the subject of countless lawsuits and arbitration claims over losses suffered by investors in several Morgan Keegan bond funds. The funds plummeted in value due to investments in toxic mortgage-related securities.

As reported Feb. 25 by Investment News, Morgan Keegan’s legal bills equaled 12% of the firm’s total revenue last year. That’s double from 2008. In total, the company spent more than $160 million in “professional and legal fees” last year on revenue of $1.28 billion, according to the Investment News article.

Recent big wins for investors have added to Morgan Keegan’s growing legal fees. Earlier this month, an arbitration panel of the Financial Industry Regulatory Industry Authority (FINRA) ruled against Morgan Keegan, awarding separate claims of $2.5 million and $1.1 million to investors.

Adding to Morgan Keegan’s legal woes has been ongoing scrutiny from securities regulators. The Securities and Exchange Commission (SEC) and FINRA both recently issued Wells Notices to Morgan Keegan, a move indicating that disciplinary action could be in the company’s future. In the SEC filing, the action stemmed to the group of Morgan Keegan bond funds. Another Wells notice was filed in connection to auction rate securities sales.

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. Leave a comment in the box below or via the Contact Us form. We want to counsel you on your legal options.

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.

Recent news coverage has not been rosy for Regions Financial Corp., the parent company of Memphis-based Morgan Keegan. In its second quarter, Regions posted $244 million in net losses versus $206 million in profits during the same period in 2008. Adding to the bank’s woes is news from the Securities and Exchanges Commission (SEC) that the regulator issued a Well notice to Regions subsidiary Morgan Keegan in July, as well as to Morgan Asset Management Company and three employees, informing them to get ready for future enforcement action over violations of federal securities laws. 

Morgan Keegan also received a Wells notice from Financial Industry Regulatory Authority (FINRA), which stated discipline actions against the brokerage were forthcoming in connection to sales of a group of proprietary mutual funds.

The now-controversial funds at the focus of the SEC and FINRA regulatory notices are the same funds facing hundreds of arbitration claims by investors who allege that Morgan Keegan misrepresented the products as low-risk and high-yield investments. In truth, the funds held huge concentrations of subprime mortgages and corporate junk bonds.

The risky composition of the RMK funds eventually spelled financial disaster for investors beginning in the summer of 2007 and the subsequent collapse of the housing market. Since then, investors have filed scores of arbitration claims with FINRA, winning a total of about $4 million in awards so far.

According to recent analyses of the Morgan Keegan funds, losses in the funds entailed more than $2 billion between March 31, 2007, and March 31, 2008.

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.