Wednesday, April 7, 2010

SEC Going After Morgan Keegan and James Kelsoe

Posted By on Wed, Apr 7, 2010 at 1:56 PM

The U.S. Securities and Exchange Commission on Wednesday charged Morgan Keegan and two top employees with fraud related to funds that invested in subprime mortgages.

Named in the complaint are fund manager James C. Kelsoe, Jr, and Joseph Thompson Weller, a CPA who was head of the Fund Accounting Department.

The SEC — the agency that started the downfall of Stanford Financial last year — said Morgan Keegan and the two employees "recklessly published" inaccurate information about funds and sold shares to investors based on the inflated prices.

The company's Memphis office building has been the centerpiece of the downtown skyline for 25 years.

"This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds," said William Hicks, associate director in the SEC's Atlanta Regional Office.

In a joint announcement, the Financial Industry Regulatory Authority (FINRA) said the scheme cost investors — many of them from Memphis — "well over $1 billion dollars." FINRA is seeking an unspecified fine, disgorgement of all ill-gotten gains, and full restitution for affected investors.

In 2006 and 2007, Morgan Keegan sold over $2 billion of the seven bond funds.

"FINRA alleges that the misleading sales materials, combined with the firm's misleading and deficient internal guidance and failure to train its brokers about the risks, led Morgan Keegan's brokers to make material misrepresentations to investors. This was particularly acute with respect to one of the funds — the Regions Morgan Keegan Select Intermediate Bond Fund — which was marketed as a relatively safe and conservative fixed-income mutual fund investment when in fact the fund was exposed to undisclosed risks."

In another companion announcement, regulatory authorities in Alabama, Kentucky, Mississippi, and South Carolina announced their intent to revoke registration and impose penalties on Morgan Keegan for violating securities laws.

Morgan Keegan was founded in Memphis some 40 years ago. It purchased a seat on the New York Stock Exchange in 1970 and executed the first trade of Federal Express when the company went public in 1978. Morgan Keegan was purchased by Regions Financial, based in Birmingham. The company sponsors the professional tennis tournament at the Racquet Club of Memphis.

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