A recent report highlights the magnitude of the Regions Morgan Keegan bond funds disaster. The report by the Securities Litigation and Consulting Group found that investors in the RMK bond funds lost $2 billion dollars. Some of the funds have lost 90% of their value since the beginning of 2007. The report states:
The RMK funds suffered massive losses because they held concentrated holdings of low-priority tranches in structured finance deals backed by risky assets. RMK did not disclose the risks it was taking until after the losses had occurred. In fact, it misrepresented hundreds of millions of dollars of leveraged asset-backed securities as corporate bonds and preferred stocks thereby making the funds seem more diversified and less risky than they were.
The report notes that RMK invested a “substantial majority” of the portfolios in low-priority tranches. The concentration dramatically increased credit risk, but this risk was not disclosed to investors even though portfolio managers in charge of the funds knew about the risks. According to the report, had RMK performed a rudimentary analysis of its holdings the company would have found that investors were exposed to up to ten times the credit risk in exchange for only up to 2% higher returns. Based on this report, Morgan Keegan investors had no way of knowing that they could lose all their money. If you need additional information on this subject, contact Scarlette Tuley at 800-898-2034.
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