Brokerage firm Morgan Keegan & Co. today agreed to pay $210 million to settle fraud charges brought by the U.S. Securities and Exchange Commission, state regulators, and the Financial Industry Regulatory Authority.
The Memphis-based firm and two of its employees were charged with causing the false valuation of subprime mortgage-backed securities in five funds in 2007. The SEC found Morgan Keegan “failed to employ reasonable pricing procedures and consequently did not calculate accurate ‘net asset values’ for the funds.”
According to the SEC, the company nevertheless published the inaccurate daily values and sold shares to investors based on the inflated prices.
“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 in a news release. “Such misconduct does grievous harm to investors.”
It’s the SEC’s second big settlement this week. Yesterday, the agency announced that J.P. Morgan Securities LLC will pay $153.6 million to settle charges that it misled investors in a complex mortgage securities transaction.
The Morgan Keegan litigation began when the SEC, on April 10, 2010, instituted public administrative and cease-and-desist proceedings against the company under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940.
Under the settlement, Morgan Keegan is required to pay $25 million in disgorgement and interest and a $75 million penalty to the SEC to be placed into a Fair Fund for the benefit of investors harmed by the violations. Morgan Keegan will pay $100 million into a state fund that also will be distributed to investors.
Former portfolio manager James Kelsoe Jr. will pay $500,000 in penalties and be barred from the securities industry, and comptroller Joseph Thompson Weller will pay $50,000.
Morgan Keegan was represented by Peter Anderson, and Atlanta-based partner at Sutherland, Asbill & Brennan.
Morgan Keegan’s parent company, Regions Financial Corp., in a press release today indicated it may sell the company now that the case is resolved, announcing that it has retained Goldman, Sachs & Co. “to explore potential strategic alternatives for Morgan Keegan.”
At the SEC, the case was litigated by Graham Loomis, Rob Gordon, John O’Halloran, Shawn Murnahan, Jerome Dewitt, Debbie Moore and Eunita Holton, with the assistance of valuation specialist Rick Mayfield. The case was brought under the supervision of Atlanta Regional Director Rhea Dignam and Associate Regional Director William Hicks.