Morgan Keegan to Pay $60,000 Fine Over Inadequate Supervision Over SBA Pools and Sales

Morgan Keegan & Co. has agreed to pay the Financial Industry Regulatory Authority $60,000 over allegations that its Small Business Administration Desk bought small business loans guaranteed by the gov’t from regional banks in this country and then pooled together the loans with qualities that were similar, securitizing them into SBA pools and then selling them to institutional clients.

When the demand for these pools started to go down, the inventory at the Desk went up a lot and stayed over Morgan Keegan’s allowable levels so that they seemed lower than what was actual and therefore in compliance with what was allowed. As a result, the head trader went into fake pool trades totaling about $82 million.

Per FINRA’s findings, because of the fake trades, Morgan Keegan thought its SBA loan levels went down down by $75 million. Also, aside from allegedly making the false trades happen, the trader moved forward the dates of settlement on a repeated basis, continuing to move the date ahead whenever a settlement date was approaching. This gave him more time so he could sell the SBA pools, leading to the generation of correct and cancel tickets for trades that went on for several months. The head trader later admitted his wrongdoing and Morgan Keegan fired him.

The SRO found that Morgan Keegan’s supervisory system and written supervisory procedures (WSP) for government loans were not adequate enough that they were able to prevent the fictitious trading that the head trader engaged in. FINRA also said that the firm lacked a way to monitor SBA loans that were more than four months old, as well as aged SMA pools, nor did it have a system for comparing and confirming ex-clearing transactions or one to assess transactions that were modified or cancelled to determine if they were reasonable.

FINRA says that Morgan Keegan did not properly address the SBA Desk inventory positions’ marking because the firm’s WSPs mandated that SBA pools get marked monthly, rather than daily. The WSPs did not properly prevent the head trader from approving his own transactions without a supervisor overseeing his actions.

Even as it submitted its Letter of Acceptance, Waiver, and Consent to FINRA, accepting the fine and ensure and consenting to the sanctions described, Morgan Keegan did not deny or admit to any wrongdoing.

Financial Industry Regulatory Authority

More Blog Posts:
Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Court Upholds Ex-NBA Star Horace Grant’s $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Morgan Keegan Must Buy Back Auction-Rate Securities and Pay $110,500, Says District Judge, Institutional Investor Securities Blog, February 12, 2013

Please contact our FINRA securities arbitration law firm if you believe you have grounds for a securities fraud claim. We represent institutional investors and high net worth clients.