Recovering Losses caused by Investment Misconduct

Regulators Slam Morgan Keegan Over Bond Funds

State and federal securities regulators simultaneously filed a number of enforcement actions against Memphis-based Morgan Keegan on Wednesday over the firms’ management and sale of the Regions Morgan Keegan Select bond funds.

The Morgan Keegan bond funds were invested heavily in risky structured products –asset- and mortgage-backed securities, including sub-prime products.  Despite the risk of such investments, the funds were marketed by Morgan Keegan as relatively safe investments when, in fact, the fund was exposed to these undisclosed risks.

These excessively risky investments caused the funds to collapse in value in 2007 as the subprime mortgage crisis ramped up.  The funds’ collapse resulted in an estimated $1 billion in losses to investors.

The various cases, filed by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), and four Southern states (Alabama, Kentucky, Mississippi, and South Carolina) accuse Morgan Keegan of misleading brokers and customers by failing to disclose the true risks of investing in the bond funds in SEC filing and marketing materials and misclassifying holdings of the funds (for instance, classifying asset-backed securities as corporate bonds or preferred stocks). 

The suits also charge that Morgan Keegan manipulated the funds’ net asset value (NAV) and that the firm failed to exercise proper supervision and due diligence over the funds’ activities, and especially over James C. Kelsoe Jr., the portfolio manager of the funds.