In proceedings filed by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, known as FINRA (f/k/a the NASD), Morgan Keegan was accused of misleading brokers and customers through marketing materials that did not disclose the risks being taken by a group of funds sold only to Morgan Keegan clients.
In addition, the S.E.C. said in its filing, James C. Kelsoe Jr., the manager of the funds, repeatedly directed the funds to use valuations for which there was no justification during the first half of 2007, and Joseph Thompson Weller, an accountant in charge of valuing the company’s funds, did nothing to correct the misstatements.
“This scheme had two architects, a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund’s bogus valuation process,” said Robert Khuzami, the commission’s enforcement director.
Morgan Keegan, which is a subsidiary of Regions Financial, a large regional bank based in Birmingham, Ala., issued a statement that did not address specific claims in the suits, but defended its actions.
“We have always held our obligations to our clients and to regulatory law with the utmost seriousness,” the firm said. “In that context, we have cooperated fully with the investigations of the S.E.C., Finra and the states for nearly three years. We are disappointed at the decision by these agencies and the states to bring charges which we believe are meritless and based upon erroneous hindsight analysis. We will vigorously refute these charges.”
The cases filed by the S.E.C. and FINRA are to be handled administratively, rather than in federal court, although Morgan Keegan could appeal any decisions to the courts. The regulators are seeking orders that the firm give up profits and reimburse investors. FINRA, which is the industry-financed regulator of brokerage firms, said that investors lost $1 billion in the funds but did not say how much restitution it would seek.
The FINRA case concerned marketing of the funds, saying that Morgan Keegan’s research division repeatedly failed to provide accurate information on the funds. One particular fund, FINRA said, “was substantially invested in structured and other products with material, specific risks that made them unsuitable for many retail investors,” but Morgan Keegan brokers were not told that and therefore did not tell their customers.
As the credit market crisis grew worse in 2007, the FINRA case makes it appear, Morgan Keegan descended into fiefs. Beginning in early June of that year, FINRA said, the bond fund department simply “stonewalled” the firm’s research department, which was trying to prepare reports and answer questions from worried brokers.
Eventually, the research division stopped following the fund, and Morgan Keegan eliminated it from accounts the firm managed. But stockbrokers were assured those changes did not reflect any concerns with the fund’s management.
Assuming the facts set forth in the regulatory complaints are accurate — and Morgan Keegan declined to comment on whether they were — it appears that Morgan Keegan sold funds as conservative investments and did not tell either brokers or customers how misleading those descriptions were.
Once the collapse began, Morgan Keegan was in a difficult position. For the firm to recommend that its customers sell would have forced liquidation of funds that owned mostly illiquid assets, making things that much worse. So on Aug. 17, 2007, three days after the firm eliminated one fund from all accounts it managed, Morgan Keegan’s head of sales assured a worried customer that “all is well” and that the funds’ holdings would soon recover.
There have already been numerous investor arbitration claims filed against Morgan Keegan and there are certainly more similarly situated investors who may have similar claims against the firm. If you have questions regarding investments you made with Morgan Keegan, or if you believe that you have been the victim of a securities fraud, The White Law Group may be able to help. The White Law Group is a national securities fraud, securities arbitration and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida. The firm has over 30 years of experience reviewing securities fraud claims and handles matters throughout the country. To contact the firm, please call 312-238-9650. Or, for more information on The White Law Group, please visit our website at https://whitesecuritieslaw.com.Tags: Alabama, Birmingham, FINRA, investment losses, investor protection, James C. Kelsoe, James Kelsoe, law firm, marketing materials, Morgan Keegan, Morgan Keegan funds, NASD, Regions Financial, S.E.C., SEC, securities arbitration, Securities Attorney, Securities Lawyer, structured products, valuation process Last modified: July 17, 2015