According to the Investment News, Regions Financial Corp. will pay $210 million to settle federal and state regulatory charges involving subprime-mortgage-laden mutual funds managed by its investment banking subsidiary, Morgan Keegan & Co.
The bank announced today in a press release that it had hired The Goldman Sachs Group Inc. to “explore potential strategic alternatives” for the investment bank. One potential alternative: selling the brokerage business and its approximately 1,250 advisers to another firm.
The charges and settlement with the Securities & Exchange Commission, Finra and five state securities regulators relate to the firm’s valuation of subprime-mortgage-backed securities in five fixed-income mutual funds managed by the asset management division Morgan Asset Management.
According to Finra, the firm made exaggerated performance claims and failed to disclose growing risks in the funds as the housing market declined in 2006-07.
The SEC accused former Morgan Keegan portfolio manager James C. Kelsoe Jr. of making arbitrary “price adjustments” to many of the mortgage-backed securities in the funds as they plummeted in value. The result was the publication of inaccurate net asset values for the five funds, the commission said.
“The falsification of fund values misrepresented critical information exactly when investors needed it most — when the subprime mortgage meltdown was impacting the funds,” said Robert Khuzami, director of the SEC’s Division of Enforcement.
About 39,000 investors lost $1.5 billion in the investments, according to regulators. They will receive $200 million of the settlement amount.
Mr. Kelsoe agreed to pay a $500,000 penalty and was barred from the securities industry. Former company comptroller Joseph Thompson Weller agreed to pay a $50,000 fine.
But the settlement isn’t the end of the matter for Regions and Morgan Keegan. There are still many arbitration claims before Finra on the matter, as well as other investors with claims that have not filed yet.
For more information on the settlement or to see if you have a separate arbitration claim against Morgan Keegan to recover your investment losses, please contact the securities attorneys of The White Law Group.
To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.