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

Events

How 401(k) advisers can use 'centers of influence' to grow their business

Leveraging relationships with accounting, benefits, and property and casualty insurance firms can help deliver new business leads for retirement plan advisers.

Latest news & opinion

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

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