Ex-Keegan fund directors left clients "in the dark': SEC

DEC 16, 2012
By  Bloomberg
U.S. regulators have accused eight former Morgan Keegan & Co. Inc. mutual fund directors 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 last Monday, follows a related $200 million settlement last year with Morgan Keegan, now a subsidiary of Raymond James Financial Inc., and sanctions against two employees in 2010. The securities at issue made up most of five funds' net asset values, in most cases more than 60%, 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. Mr. Blair, Mr. Johnson, Mr. McFadden, Mr. Pittman, Mr. Willis and Ms. Stone 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 LLP. An e-mail seeking comment to Peter Anderson, an attorney for Mr. Alderman and Mr. Morgan, wasn't answered. The five funds at issue in the SEC's order are Morgan Keegan Select Fund, RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund and RMK Strategic Income Fund. Raymond James spokesman Steve Hollister declined to comment.

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