Regions Financial Corporation and its Morgan Keegan investment operation are facing federal and state charges related to certain mutual funds. A number of their mutual funds took tremendous hits in the market due to over exposure to collateralized debt obligations and other risky mortgage-related investment holdings. Several Morgan Keegan mutual funds lost in excess of 70% of their value in a short period of time.
Regions and Morgan Keegan were formally served on July 9th with a “Wells Notice” by the SEC. The notice informed Regions and Morgan Keegan that the SEC intends to recommend enforcement actions against them for possible violations of Federal Securities Laws. The mutual funds at issue were managed by Morgan Asset Management, Inc., a part of Morgan Keegan, and James Kelsoe, a senior portfolio manager. The management of the mutual funds at issue has now been transferred to Hyperion Brookfield Asset Management, Inc. of New York.
Through the end of 2005, the mutual funds at issue beat all U.S. high yield bond funds and the Dow Jones industrial average. In the wake of the mortgage crisis and housing meltdown, three popular Morgan Keegan bond funds plummeted by 60% or more, creating among the worst returns of any bond mutual funds in the country.
As you may know, a Wells notice is not a formal allegation nor is it a finding of wrongdoing. The notice provides the recipients the opportunity to provide their perspective and to address issues raised prior to any formal action being taken by the Commission. But it’s not a notice that anybody in the securities business ever wants to get.
Separately, Morgan Keegan is facing hundreds of lawsuits and arbitration complaints from institutional and individual investors who put their money in the poor performing bond funds. Numerous arbitration proceedings have already occurred against Morgan Keegan with the majority of decisions being in favor of Plaintiffs seeking restitution.
The Alabama Securities Commission, which has been heavily involved, says that Morgan Keegan “engaged in fraud, used unethical sales practices, failed to supervise agents, and withheld material facts from customers.” The SEC also has filed suit over the matter in U.S. District Court in Atlanta, saying the firm stranded investors with $1.2 billion of securities in transactions that earned it $4.3 million in fees from June 2007 through February 2008.
The Alabama Securities Commission gave Morgan Keegan 28 days to dispute the allegations in its “show cause” order, which demands the firm demonstrate why its registration to do business in Alabama shouldn’t be suspended or revoked. Alabama regulators also are seeking to force the firm to buy back all auction-rate securities it sold to customers and pay back any profits it earned from selling them.
If you need more information on this subject, contact Scarlette Tuley, Jay Aughtman, or Dee Miles, lawyers in our firm who are handling Morgan Keegan litigation, at 800-898-2034 or by email at Scarlette.Tuley@beasleyallen.com, Jay.Aughtman@beasleyallen.com or Dee.Miles@beasleyallen.com.
Source: Associated Press
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