Archive for the “Mutual Funds” Category

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.

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.