Morgan Keegan hearing reset for early 2011
by Ted Carter
Published: October 5,2010
The Mississippi Secretary of State’s office agreed to postpone a hearing that was set for today regarding claims that Morgan Keegan & Co. misled Mississippi investors, causing them to lose $2 billion. The hearing will likely be rescheduled for January or February, an official has said.
Postponement of the hearing that was set for this morning gives Morgan Keegan, the investment arm of Regions Bank, more time to prepare not only for the Mississippi case but for hearings on complaints filed by investment regulators in four other Southern states and the U.S. Securities & Exchange Commission. Alleged fraudulent activities occurred from 2006 to 2008.
The federal Financial Industry Regulatory Authority (FINRA) has also lodged complaints that seek fines, repayment of profits and restitution to 13,000 investors, including Mississippians who lost $30 million buying toxic-asset filled bond funds peddled by Morgan Keegan.
Policy prohibits FINRA from giving details on hearings or their scheduling, a spokesman said.
Regulators charge that Morgan Keegan passed off seven bond funds packed with risky structured products – particularly subordinated tranches of asset- and mortgage-backed securities, including sub-prime products. Those investments caused the funds to experience serious financial difficulties beginning in early 2007, and led to their collapse later that year. FINRA charges that brokers and the printed sales material they used led investors to believe they were buying intermediate risk funds.
This was especially true with the Regions Morgan Keegan Select Intermediate Bond Fund, FINRA said. Morgan Keegan marketed the fund “as a relatively safe and conservative fixed income mutual fund investment when, in fact, the fund was exposed to undisclosed risks associated with its investment in mortgage- and asset-backed securities and subordinated tranches of structured products,” FINRA said.
Regions Financial Corp., parent of Regions Bank, has taken a financial hit from the allegations. It attributed 17 cents of a 28-cents-a-share loss in the second quarter to Morgan Keegan-related troubles, President & CEO Grayson Hall said.
“Although we have not reached final settlement, based on the current status of negotiations, we recorded a nontax deductible $200 million charge representing the estimate of probable loss,” Hall said in detailing the bank’s second quarter performance to analysts.
Morgan Keegan’s hearing with Mississippi regulators likely will be rescheduled for January or February, according to Joseph Borg, director of the Alabama Securities Commission. The hearing was to have been held in the Montgomery office of Borg’s agency.
Alabama, Kentucky and South Carolina joined Mississippi in creating a task force that filed a joint complaint against Morgan Keegan & Co. and Morgan Keegan Asset Management in early April. The states had sought a joint hearing at which Morgan Keegan would address their complaints but the firm insisted on separate hearings, Borg said. Each hearing will be in Montgomery, because the city is centrally located to each state, he added.
Morgan Keegan was to go before a federal judge in Atlanta on Oct. 13 but the judge’s retirement forced a rescheduling of that hearing, Borg said. A date will be set once a new judge is assigned to the case.
Mississippi and the other states are unlikely to grant any additional delays, even if it requires the investment firm to answer the SEC complaint at the same time as those of the states. Borg said. “We’re not in a mind to put it off much longer.”
In its complaint, the Securities and Charities Division of the Mississippi Secretary of State’s Office claims Morgan Keegan:
• Made material omissions and misrepresentations in marketing materials;
• Made material omissions and misrepresentations in regulatory filings;
• Withheld information from and misrepresented information concerning the funds to the Morgan Keegan sales force;
• Provided preferential treatment to certain customers;
• Failed to make suitable recommendations concerning purchase and concentration of the funds in customer accounts;
• Failed to adequately supervise their employees;
• Obstructed the due diligence process.
State officials say they intend to seek restitution for Mississippi investors.
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