Securities regulators from the states of Alabama, Mississippi, South Carolina, and Kentucky have sued Morgan Keegan & Company, Morgan Asset Management, MK Holdings, Inc., Regions Financial Corporation, and several employees from those companies for their roles in managing, marketing, and selling certain Regions Morgan Keegan bond mutual funds in violation of the states’ securities laws. The regulators have accused the brokerage firm, investment adviser, fund manager, and specified employees of the broker-dealer and investment adviser of filing and using misleading regulatory filings and marketing materials, and due diligence and supervisory failures. The mutual funds involved in the regulatory proceedings are
Regions Morgan Keegan Select Intermediate Bond Fund, Regions Morgan Keegan Select High Income Fund, Regions Morgan Keegan Advantage Income Fund, Regions Morgan Keegan High Income Fund, Regions Morgan Keegan Multi-Sector High Income Fund and Regions Morgan Keegan Strategic Income Fund.
The state securities regulators allege that the Respondents misled investors by failing to disclose the risks associated with the Funds; misrepresenting the nature of the Funds; misclassifying the securities held within the Funds; comparing the performance of the Funds to inappropriate peer groups (benchmarks); failing to accurately represent the amount of structured debt securities held in the Funds; and after the collapse of the Funds, recommending that investors should hold and/or continue to buy the Funds. The regulators further allege that Respondents engaged in unethical sales practices by inappropriately targeting customers who owned low-risk certificates of deposit (“CDs”) and customers who were retired or nearing retirement. Respondents also are accused of failing to adequately acknowledge the risks associated with the Funds, particularly the Intermediate Bond Fund, which was marketed as being appropriate for investors seeking low-risk investment strategies.
The regulators allege that Respondents failed to adequately examine and report about the Regions Morgan Keegan bond mutual funds to the brokerage firm’s brokers and investors. The state securities regulators also accuse Respondents of failing to adequately train their brokers about the Regions Morgan Keegan bond funds at issue. In addition, the corporate Respondents are accused of shielding the mutual funds’ Manager, Respondent James C. Kelsoe, Jr., from the established supervisory structure.
The misrepresentations, omissions, and sales practices of Respondents enticed investors to invest in the mutual funds. The investment adviser’s management of the Funds, the brokerage firm’s inadequate due diligence, and Respondents’ overall supervisory failures resulted in investor losses of approximately Two Billion Dollars ($2,000,000,000.00).