Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M

According to the SEC, FINRA, and state regulators, Morgan Keegan & Company and Morgan Asset Management have consented to pay $200 million to settle subprime mortgage-backed securities-related charges. Also agreeing to pay penalties over their alleged misconduct are Morgan Keegan comptroller Joseph Thompson Weller and ex- portfolio manager James C. Kelsoe Jr.

The two men were accused of causing the false valuation of subprime mortgage backed securities in five Morgan Asset Management-related funds. Per the SEC’s administrative order, Kelsoe directed the fund accounting department to arbitrarily execute price adjustments to the fair values of certain portfolio securities. These adjustments disregarded the lower values for the same securities that outside broker-dealers provided as part of the pricing process. Kelsoe’s directives and the actions that were taken as a result would sometimes cause Morgan Keegan to not price the bonds at current, fair value.

The SEC also says that Kelsoe screened and affected at least one broker-dealer’s price confirmations. That broker-dealer had to provide interim price confirmations that were below the value that the funds were valuing certain bonds at but greater than the initial confirmations that the broker-dealer meant to provide. The interim price confirmations allowed the funds to not mark down the securities’ value to reflect current fair value. Kelsoe is also accused of getting the broker-dealer to withhold price confirmations in certain instances where they would have been significantly lower than the funds’ current valuations of the relevant bonds. The SEC says that Kelsoe fraudulently kept the Navs of funds from being reduced when they should have gone down when the subprime securities market deteriorated in 2007.

Of the $200 million, Morgan Keegan must pay a $75 million penalty to the SEC, $25 million in disgorgement, and $100 million to a state fund that would then pay investors.

Morgan Keegan to Pay $200 Million to Settle Fraud Charges Related to Subprime Mortgage-Backed Securities, SEC, June 22, 2011
Morgan Keegan Entities to Pay $200M In Settlement Over Subprime MBS Valuations, Law 360, June 22, 2011

More Blog Posts:
Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Fund, Stockbroker Fraud Blog, October 6, 2010
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