Morgan Keegan

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

Published on: April 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed claims against Morgan Keegan & Co, Morgan Asset Management and employees James C. Kelsoe, Jr. and Joseph Thomas Weller for securities fraud that allegedly involved inflating the value of subprime mortgage-backed securities.

According to investors and a number of state regulators, RMK Funds (RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Select High Income Fund, RMK Strategic Income Fund, and the RMK Select Intermediate Fund) were marketed and recommended as funds that would provide a consistent income level while the actual risks involved were misrepresented and the funds’ net asset value pricing was manipulated.

The SEC’s enforcement division is accusing Morgan Keegan of failing to put into place reasonable procedures to internally price the portfolio securities in five funds, and as a result, being unable to accurately calculate the funds’ “net asset values.” These inaccurate daily NAVs were published while investors bought shares at inflated prices.

The enforcement division is also accusing fund portfolio manager Kelsoe of acting arbitrarily when he told Morgan Keegan’s Fund Accounting department to adjust prices in a manner that would make certain portfolio securities’ fair value go up. He had his assistant send about 262 “price adjustments” to Fund Accounting between at least January and July 2007.

On numerous occasions, adjustments were arbitrary, disregarded lower values that other dealers had quoted for the same securities, and neglected to reflect fair value. They were entered into a spreadsheet to determine the funds’ NAVs-even though there were no supporting documents. Kelsoe also is accused of regularly telling Fund Accounting to disregard broker-dealers’ month-end quotes that should have been used to validate the prices Morgan Keegan had assigned to the securities in the funds, as well as manipulated pricing quotes he received from at least one broker-dealer.

The Division of Enforcement is accusing Weller, a CPA who belonged to the Valuation Committee and served as the Fund Accounting Department head, of failing to fix the deficiencies in the valuation procedures, as well as not ensuring that fair-valued securities were accurately priced or that NAVs were correctly calculated.

Related Web Resources:
SEC Charges Morgan Keegan and Two Employees With Fraud Related to Subprime Mortgages, SEC.gov, April 7, 2010
SEC Order (PDF)

Morgan Keegan, 2 Employees Face SEC Fraud Charges, The Wall Street Journal, April 7, 2010 Continue Reading ›

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses

Published on: February 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel has ordered Morgan Keegan & Co. to pay investor Andrew Stein $2.5 million because the bond funds that he invested in had bet poorly on mortgage-related holdings. Panel members found Morgan Keegan liable for failure to supervise, negligence, and for selling investments that were unsuitable for Stein and his companies. The claimants, who sustained financial losses, had initially sought $12 million.

Stein’s arbitration claim is just one of over 400 securities claims that have been filed against Morgan Keegan over its bond funds that had invested in subprime-related securities, such as CDO’s (collateralized debt obligations). When the US housing market collapsed, the funds went down in value by up to 82%.

Stein contends that Morgan Keegan did not reveal the kinds of risks involved in investing in the bond funds. He and his companies claim that Morgan Keegan artificially increased the fund assets’ value so that the funds would appear more stable and investors wouldn’t be able to see the actual risks involved.

Claims Filed Against Morgan Keegan Division of Regions Financial Causes Shortage of Arbitrators

Published on: February 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has had to bring in hundreds of additional arbitrators to deal with the approximately 400 securities fraud claims that investors have filed against Regions Financial Corp., the investment banking unit of Morgan Keegan & Co. Investors are seeking to recover $35 million after three of its mutual funds dropped in value by up to 82% when the housing market fell apart. The Region Financial Corp mutual funds contained subprime-related securities, including collateralized debt obligations, low-quality mortgages, and mortgage-backed securities.

Morgan Keegan claims that it notified investors of the risks associated with investing in the mutual funds. Regions says that to date, 79 arbitration cases have been heard. 39 of the cases were dismissed and 114 arbitration claims seeking $24 million were dropped before decisions were reached. The investment firm is putting up a tough fight against the complaints. So far, arbitrators have been awarded $7.6 million.

Because so many investors filed arbitration claims, FINRA has had to contact arbitrators in different parts of the US and ask them to come to the different cities where the hearings on the mutual funds are talking place. The average pool of arbitrators in each city is now approximately 721 persons. This is an increase from its previous average pool of 87 arbitrators.

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors

Published on: October 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Keegan & Co. has been ordered to pay $51,000 to Larry and Diane Papasan. Larry Papasan is Memphis Light, Gas and Water Division’s former president.

The Papasans filed their arbitration claim against Morgan Keegan last year after they lost about $80,000 in the account they had with the investment firm. The Papasans’ claim is one of many arbitration cases and securities fraud lawsuits filed by Morgan Keegan investors who sustained RMK fund losses. The general accusation is that the broker-dealer misrepresented the volatility of the bond funds, which they allegedly were not managing conservatively.

Larry Papasan, who is retired, opened his account because he knew John Wilfong, a former Morgan Keegan financial adviser. Wilfong felt so confident about the bond funds that he even sold them to his mother, Joyce Wilfong, who also went on to suffer financial losses from her investment. Her friend Maxine Street also suffered bond fund losses.

The two women filed a joint arbitration claim against Morgan Keegan. Joyce was awarded $68,000, while Street settled for an undisclosed sum.

According to the Papasans, John Wilfong spoke with Jim Kelsoe, the RMK funds’ manager, prior to leaving Morgan Keegan for UBS. Kelsoe allegedly told Wilfong not to liquidate because the funds were safe. The Morgan Keegan fund manager is named in other cases for allegedly failing to disclose the risks associated with the mutual fund investments.

Related Web Resources:
Latest RMK Award Goes to Ex- MLGW Head, Memphis Daily News, October 27, 2009
Two Morgan Keegan Funds Crash and Burn, Kiplinger, December 2007 Continue Reading ›

Morgan Keegan Hit with Large Penalty for Fouling Ex-NBA Star

Published on: September 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Following a dispute that was resolved in arbitration, broker-dealer Morgan Keegan & Co. must pay former NBA player Horace Grant $1.46 million. The amount is the largest arbitration loss for Morgan Keegan to date. Morgan Keegan is the securities brokerage firm of Regions Financial Corp.

The award, issued by the Financial Industry Regulatory Authority, is for damages that Grant incurred because he invested in Morgan Keegan’s risky mutual funds that were involved in collateralized debt obligations connected to residential mortgages. Grant had originally sought $1.5 million for the damages he sustained.

There are still several hundred investment fraud lawsuits pending against the brokerage firm over mutual funds involving subprime mortgages that declined because the US housing market fell apart and loans defaulted. Up to 95% of the funds’ value has dissolved since the middle of 2007.

Green used to play for the Chicago Bull, the Los Angeles Lakers, the Seattle Supersonics, and the Orlando Magic. In his arbitration case, the former NBA basketball player contended that Morgan Keegan misrepresented the level of risk that came with the bond funds that he purchased.

Already, Morgan Keegan has lost a number of cases in 2009. Seven of the cases have cost the broker-dealer $3 million. Other professional athletes who have filed lawsuits against Morgan Keegan for losses that they say they sustained from the bond funds are Jerome Woods, formerly of the Kansas City Chiefs, and former St. Louis Cardinals baseball player Tim McCarver. Woods won $950,000 against the brokerage firm while McCarver resolved his claim for $100,000.

Our stockbroker fraud law firm represents numerous investors who have sued Morgan Keegan for misrepresenting risky investments as safer kinds of investments.

Related Web Resources:
Ex-NBA star wins $1.45M arbitration claim against Morgan Keegan, Investment News, September 14, 2009
Morgan Keegan ordered to pay former NBA star $1.4M, Memphis Business Journal, September 14, 2009
NFL retiree gets $950,000 for Morgan Keegan mutual fund losses, Commercial Appeal, April 14, 2009
McCarver Awarded $100K in Morgan Keegan Claim, Memphis Daily, February 26, 2009 Continue Reading ›

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

Published on: July 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

Ex-Morgan Keegan Adviser Pleads Guilty to Stealing from Senior Investor

Published on: June 15, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A former Morgan Keegan adviser has pleaded guilty to charges that he stole from an elderly investor. Charges included investment adviser fraud and making and subscribing a bogus tax return. Now, Harold “Hal” Blondeau could be facing up to eight years in prison. He also may have to pay restitution to his victim. Martha B. Capps is now 83.

Blondeau received power of attorney over the senior investor’s accounts as she was experiencing the beginning stages of Alzheimer’s. She wanted him to keep her inheritance away from her husband. Large sums were taken out of Capps’ accounts.

The former Morgan Keegan adviser is accused of using some of the stolen funds to pay for personal expenses, including a beach house and $24,000 in wine. The beach house, purchased in Capps’ name, would have gone to Blondeau upon her death.

Almost $3 million was taken from the account of Martha B Capps. In 2007, attorneys for the elderly woman filed a lawsuit against Blondeau, his son Neal Knight, and Knight’s two daughters. The complaint contends that the group stole money from Capps. Blondeau and Knight are accused of establishing a non-profit foundation in the name of Capps’ father and donating the money to different organizations to enhance their own images. Capps’ money was also used for the college education of the two men’s children.

In 2007, Blondeau was let go from Morgan Keegan because he failed to disclose a loan that was obtained from a client. To date, Blondeau is the only one out of the four civil lawsuit defendants that is facing criminal charges in federal court.

Taking advantage of an elderly investor is a crime and can be grounds for an investor fraud lawsuit. Unfortunately, senior investors-especially those that have inherited money or have retirement savings are easy targets of investor fraud.

Related Web Resources:
Raleigh investment adviser pleads guilty to fraud, Triangle Business Journal, June 11, 2009
Continue Reading ›

Morgan Keegan & Co’s Regions Financial May Face SEC Charges Over Improper Auction-Rate Securities Sales

Published on: May 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Regions Financial Corp, a Morgan Keegan & Co brokerage unit, says the US Securities and Exchange Commission may file a civil proceeding against it over charges that the firm allegedly engaged in the improper sale of auction-rate securities. The regulator filed a “Wells Notice” against Morgan Keegan in March. The notice means that a civil proceeding could be next. It also gives Morgan Keegan the opportunity to prepare a defense.

The SEC is examining the degree to which Morgan Keegan revealed to its clients the risks associated with investing in the auction-rate market and whether the firm sold a huge amount of that debt even when its ability to support the auction had declined.

Morgan Keegan is purchasing back the ARS it sold to clients. According to Morgan Keegan spokesperson Kathy Ridley, the investment firm has already gotten back $28 million in ARS.

Our securities fraud lawyers at Shepherd Smith Edwards & Kantas LTD LLP are working with numerous clients on claims against Morgan Keegan and Regions Financial over failed auction-rate securities investments, as well as investor claims involving these Morgan Keegan Bond Funds:

• RMK Strategic Income Fund (RSF)

• RMK Advantage Income Fund (RMA)

• RMK Multi-Sector-High Income Fund (RHY)

• RMK High Income Fund (RHM)

• RMK Select High Income Funds: C (RHICX), I (RHIIX), and A (MKHIX)

• RMK Select Intermediate Bond Funds: A (MKIBX), C (RIBCX), I (RIBIX)

The collapse of the $330 billion auction-rate securities market left many investors unable to sell auction-rate debt that they were told were safe to invest in and that were the liquid equivalent of cash. Since then, many investors have come forward complaining that they were misled about the risks tied to investing in the market.

Regions Financial unit may face SEC charges, Reuters, May 11, 2009
Regions Financial says Morgan Keegan unit received ‘Wells notice’, The Birmingham News, May 12, 2009 Continue Reading ›

Did Morgan Keegan Tutor Towns to Invest into Their Own Risky Deals?

Published on: April 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Tennessee city of Lewisburg got an unpleasant surprise this January when they discovered that their annual interest rates on a bond was now $1 million. Officials had gotten themselves involved in risky municipal bonds after speaking with investment firm Morgan Keegan & Co. at a state-sponsored seminar five years ago. Not only did Morgan Keegan offer them advice about these complex financial transactions, but their representatives made the deal.

Unfortunately, Lewisburg is just one of the hundreds of US cities and counties feeling the financial fallout because high-risk municipal bond derivates have gone sour. For example, officials in Tennessee’s Claiborne County were told by Morgan Keegan bankers that they would have to pay $3 million (an amount they can’t afford) to remove themselves from municipal bond derivatives. And in Mount Juliet, city leaders discovered that payment of their bonds had gone up 500% to $478,000.

Morgan Keegan has been able to dominate the lightly regulated municipal bond marketplace. Based in Tennessee, the investment company has sold $2 billion in municipal bond derivates to 38 cities and counties since 2001. Morgan Keegan reps say they’ve managed to save counties and cities money by providing lower interest rates. They also maintained that it is not their fault that the economic crisis has created turmoil in the bond market.

Now, however, federal regulators are trying to figure out how to restrict municipal bond derivative use. They also want to determine whether it makes sense for big investment banks to convince small counties and cities to take part in transactions that decrease interest rates but come with higher risks.

Morgan Keegan’s managing director Joseph K Ayres says that the investment firm is being unfairly blamed for the economic slump and that there was no conflict of interest when it advised municipalities and underwrote bonds. He says that the state of Tennessee had requested and approved the seminar and that the firm did not offer unbiased descriptions of municipal bond options or market any products during the session. Lewisville officials, however, say that Morgan Keegan failed to provide them with proper advice and did not fully explain the risks of their investment to them.

Investment banks make more in yearly income and fees from derivatives than from fixed-income bonds. In Tennessee alone, Morgan Keegan has made millions of dollars in fees. Unfortunately, it’s the municipalities and other investors who stand to lose a great deal.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney Bill Shepherd has this to say: “As a former advisor to municipalities I can tell you that those who manage public funds depend heavily on their financial advisors to be not only truthful but candid about investment risks. It is disgraceful when unscrupulous “experts” abuse the trust placed in them to mine public funds for their own greed. Our firm currently represents a number of municipalities, credit unions, etc., which have lost hundreds of millions of dollars.” Continue Reading ›

Morgan Keegan Ordered by FINRA to Pay Investors $267,711 Plus Interest for Losses in RMK Bond Funds

Published on: April 7, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Separate Financial Industry Regulatory Authority arbitration panels have issued awards to investors who suffered financial losses in Regions Morgan Keegan mutual funds. Last week, a FINRA panel awarded two California residents $267,711 plus interest for their losses-the largest bund fund arbitration award that Morgan Keegan has been ordered to pay to date.

In two arbitration cases last month, investors were also awarded six-figure sums, with one award amount larger than the damages claimed by investors. To date, FINRA panels have awarded over $871,000 to investors for their Morgan Keegan-related claims.

All of the arbitration claims accuse Morgan Keegan of concealing the actual risks associated with their bond funds. The investors have accused Morgan Keegan of selling certain funds as relatively conservative investments when they were actually exposed to a number of high risk debt instruments, including collateral debt obligations and subprime mortgage securities. They say Morgan Keegan engaged in a scheme to defraud investors of certain bond funds and misrepresented the extent of their holdings in riskier investments.