Archive for the “Morgan Keegan Bond Funds” Category

It was in the 1990s that the Shelby County, Tennessee, government first entered into a contractual agreement with Memphis-based Consulting Services Group (CSG) for advice on how to allocate its pension fund assets and on which money managers to hire. One of those money managers eventually included Morgan Asset Management, a subsidiary of Morgan Keegan & Co. Today, both companies - CSG and Morgan Keegan - are the subject of ongoing investigations and possible enforcement actions by the Securities and Exchange Commission (SEC) for misleading investors.

CSG has been identified as channeling clients’ money into Ponzi schemes, including the notorious one run by Bernie Madoff. It’s also being questioned by the SEC and New York Attorney General Andrew Cuomo for its role in the so-called “pay-to-play” pension fund consulting scandal in New York.

Meanwhile, Morgan Keegan, Morgan Asset Management and three unidentified employees were put on notice by the SEC earlier this month to expect legal action in the relating to various types of securities and financial products that Morgan Asset Management managed and which the SEC believes Morgan Keegan misrepresented to investors.

The products in question include several Morgan Keegan mutual funds whose values plummeted in 2007 and 2008 because of the underlying investments they contained. Those investments, which Morgan Keegan allegedly marketed to investors as stable investments, included high concentrations of risky and untested securities. 

In addition, the SEC filed a federal complaint against Morgan Keegan in early July over its sales of auction-rate securities. Again, the agency claims Morgan Keegan misrepresented the nature of risks associated with the instruments to investors.

As for Shelby County, the account that Morgan Asset Management oversees is comprised of intermediate bond funds; securities in that account are currently valued at $3.6 million. The account was opened nine years ago with $20 million, according to a July 24 article in the Memphis Daily News. At the pension board’s request, Morgan Asset Management recently began disposing of securities in the fund; the $3.6 million in securities is what remains. The fund should be completely liquidated within the next three to six months, according to the article. Once that happens, Shelby County will no longer have a relationship with Morgan Asset Management.

CSG’s future role in managing Shelby County’s finances is still unclear, though given the fact it has a long history of regulatory black eyes against it - the most recent being the New York state pension fund scandal - county officials may finally start to scrutinize the company’s practices in earnest. Some food for thought might include a recent article in the June 8 issue of Forbes magazine. The story provided a cautionary tale on the pension fund consulting industry, citing CSG as one of the biggest players. Among the highlights: 

• In the 1990s, CSG began steering clients into hedge funds, including its own and others that paid finder’s fees. One CSG client was municipally owned Memphis Light, Gas & Water. In 1997, Memphis Light discovered CSG was collecting $800,000 annually in commissions from a Florida money manager. The utility’s pension replaced CSG later that year as its consultant.

• In 1998, CSG signed up Shelby County and its $670 million pension fund as a new client. CSG put Shelby County into five funds of funds, which invested in 120 hedge funds. That “strategy” subjected Shelby County to three layers of fees that together cost between 2.5% and 3.25% annually, plus 20% of any profits. Last year, the pension lost 25% of the assets it had invested in CSG’s hedge fund program, net of fees.

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.

Morgan Keegan & Company has officially been charged by the Securities and Exchange Commission (SEC) of misleading thousands of retail and institutional investors about the liquidity risks of auction-rate securities (ARS). The SEC, which announced the charges against the Memphis brokerage on July 21, is seeking a court order requiring Morgan Keegan to repurchase the illiquid instruments from customers. 

According to the SEC’s complaint, Morgan Keegan misrepresented auction-rate securities as a low-risk alternative to cash - an investment that could easily be redeemed if investors needed immediate access to their money.

Between Nov. 1, 2007, and March 20, 2008, Morgan Keegan sold approximately $925 million of auction-rate securities to clients. At the same time, the SEC contends Morgan Keegan failed to inform its customers about the increasing liquidity risks of the instruments, even after the firm decided to stop supporting the ARS market in February 2008. 

“Morgan Keegan was clearly aware that the ARS market was deteriorating, but it went so far as to actually accelerate its ARS sales even after other firms’ ARS auctions began to fail,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “As we’ve done in our enforcement actions against other firms, the SEC is firmly committed to restoring liquidity to Morgan Keegan customers who purchased ARS.” 

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.

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.

Already facing a slew of investor lawsuits and arbitration claims for losses in certain bond funds, Morgan Keegan & Co. could soon find itself the subject of a civil proceeding by the Securities and Exchange Commission (SEC) for the alleged mishandling of auction-rate securities.

In a quarterly report filed in March, Regions Financial revealed that the SEC had filed what’s known as a Wells Notice against Morgan Keegan. Receipt of a Wells Notice indicates the possibility of future civil action by the SEC, and gives recipients the opportunity to gather materials and other relevant information for their defense.

In the case of Morgan Keegan, the SEC’s focus is on whether the brokerage appropriately disclosed the liquidity risks associated with auction-rate bonds. In addition, the SEC is investigating whether Morgan Keegan subsequently sold off large volumes of the securities once its ability to support weekly auctions for the instruments was diminished.

Auction-rate securities are long-term financial instruments with interest rates that reset in weekly or monthly auctions. In February 2008, the $330 billion market for auction-rate securities came to an abrupt standstill, leaving investors holding a security they could only sell at a significant loss.

Following the auction market’s meltdown, officials from the Financial Industry Regulatory Authority and the SEC began a series of investigations at nearly 40 brokerages nationwide to determine if they adequately informed customers about the risks of auction-rate investments. Last summer, in an effort to settle accusations by regulators, many of the nation’s biggest banks agreed to buy back more than $55 billion worth of bonds that their retail clients had been unable to sell.

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 Morgan Keegan & Co., the brokerage arm of Regions Financial Corp., is discovering the best-laid plans can indeed have dire - and expensive - consequences. In 2002, Morgan Keegan enthusiastically unveiled a group of high-yield bond funds filled with unconventional and untested structured finance products, including large concentrations of mortgage-backed securities. Today, Morgan Keegan and those bond funds are mired in lawsuits, with six cases costing the company more than $1.6 million in just the past two months.

For awhile, the RMK funds, which included the Select Intermediate Bond Fund and the Select High Income Fund, outperformed their peers. Then, in 2007, the subprime mortgage crisis took center stage and a dark cloud suddenly was cast over the future performance of the funds. In late 2006, the funds’ assets were $1.6 billion; by the end of June 2008, the figure had shrunk to $52 million.

As reported May 1 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 Birmingham Business Journal article.

New information regarding the risk factors of the bond funds and what Morgan Keegan did and did not reveal to investors, including the funds’ classification as investments similar to corporate bonds and preferred stocks when in fact they were high-risk derivatives, ultimately has helped investors prove their cases. Since early March, six different investors have rendered significant awards from FINRA arbitration panels. In one case, an investor won $950,000.

The bottom line: There seems to be a new trend shadowing the arbitration claims against Morgan Keegan and its bond funds, one in which more investors are coming out on top because the evidence speaks for itself.

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 recent Financial Industry Regulatory Authority (FINRA) award of $187,000 to a retired Alabama cattle farmer who suffered losses in Morgan Keegan & Company bond funds is now the subject of an appeal by the Memphis-based investment bank. On April 13, Morgan Keegan filed a motion to vacate the award, arguing that FINRA overstepped its authority to provide compensatory damages greater than the amount actually requested by the investors.

Specifically, on March 11, an Alabama FINRA arbitration panel awarded Phillip Willingham and Melinda Oates $187,215 for their claim against Morgan Keegan. Initially, the couple sought damages of $109,881, as well as “unspecified, well-managed damages had their account been properly invested.”

FINRA did not explain the rationale behind the amount it awarded, saying only that the award was for compensatory damages.

Investors’ claims against Morgan Keegan concern the performance of a group of RMK bond funds, many of which have lost more than 95% of their value since mid-2007. The losses have since been traced to the investments that Morgan Keegan made in risky and untested types of subprime mortgage securities, collateral debt obligations (CDOs) and other debt instruments. Ultimately, the overexposure to those products cost investors more than $2 billion in losses.

In turn, the financial carnage in the Morgan Keegan funds has spawned a wave of lawsuits and arbitration claims by investors who say they were steered into risky funds that Morgan Keegan represented as low-risk and conservative.

Morgan Keegan is owned by Regions Financial.

As for Morgan Keegan’s latest attempt to sidestep FINRA’s March 11 award of $187,000 to Phillip Willingham and Melinda Oates, a Jefferson County, Alabama, Circuit Court will now decide the final outcome in the case.

In the meantime, Morgan Keegan is facing hundreds of additional arbitration claims regarding its collapsed bond funds. To date, FINRA has awarded more than $1.6 million to investors for their losses in the funds. Among the most recent arbitration awards: $950,000 to Jerome Woods, a former football player for the Kansas City Chiefs; $100,000 to sports broadcaster Tim McCarver; $267,711 plus interest to two California brothers; and $18,000 to an Indiana church secretary.

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.