Ex-Morgan Keegan fund directors left investors 'in the dark,' SEC claims

Commission alleges value of subprime assets were overblown; $200M settlement in 2011

Dec 10, 2012 @ 2:45 pm

Eight former directors overseeing mutual funds for Morgan Keegan & Co. were accused by U.S. regulators of allowing assets backed by subprime mortgages to be overvalued as the housing market collapsed in 2007.

The action, filed in administrative court by the Securities and Exchange Commission today, follows a related $200 million settlement with Morgan Keegan, a subsidiary of Raymond James Financial Inc., last year and sanctions against two employees in 2010. The securities at issue made up the majority of five funds' net asset values, in most cases more than 60 percent, the SEC said.

The eight directors, who were responsible for determining the fair value of fund securities that lacked readily available market quotations, delegated valuation tasks to a committee without providing meaningful guidance on how the assets should be priced, the SEC said. The directors made no meaningful effort to learn how the values were being determined and obtained almost no information explaining why particular values were assigned to portfolio securities, according to the order.

“Investors rely on board members to establish an accurate process for valuing their mutual fund investments,” SEC Enforcement Director Robert Khuzami said in a statement. “Otherwise, they are left in the dark about the value of their investments and handicapped in their ability to make informed decisions.”

The directors named in the order were J. Kenneth Alderman, Jack R. Blair, Albert C. Johnson, James Stillman R. McFadden, Allen B. Morgan Jr., W. Randall Pittman, Mary S. Stone and Archie W. Willis III.

'Emphatically Deny'

Blair, Johnson, McFadden, Pittman, Stone and Willis acted “diligently and in good faith” and intend to contest the SEC's allegations, which they “emphatically deny,” according to a statement from their attorney, Stephen Crimmins of K&L Gates in Washington. An e-mail seeking comment to Peter Anderson, an attorney for Alderman and Morgan, wasn't immediately answered.

Raymond James, based in St. Petersburg, Florida, acquired Morgan Keegan from Regions Financial Corp. (RF) in April for about $1.2 billion. The five funds at issue in the SEC's order are RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Strategic Income Fund, RMK Advantage Income Fund and Morgan Keegan Select Fund.

Steve Hollister, a spokesman for Raymond James, didn't immediately comment.

According to the SEC's order, the net asset values of the funds were materially misstated in 2007 from at least March 31 to Aug. 9. As a result, the prices at which one open-end fund sold, redeemed and repurchased its shares were inaccurate, the SEC said.

--Bloomberg News--

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Advisers should look beyond 529 plans for college planning

Editor Fred Gabriel talks to reporter Ryan Neal about how college-savings strategies are more important than ever as tuition costs soar.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print