Regions Bank subsidiary Morgan Keegan faces a horde of lawsuits, SEC actions, and controversy. The SEC filed an action against it a month ago. The SEC accuses Morgan Keegan:
"Beginning in late 2007, Morgan Keegan misled thousands of its customers regarding the fundamental nature and increasing risks associated with auction rate securities that Morgan Keegan underwrote, , marketed, and sold..."
The auctions for these securities began to fail. The SEC claims MK increased the sale of them to their customers, assuring them they were safe, as all other broker-dealers abandoned them, then pulled out of the auctions, backstabbing their clients in the process. It charges MK "continued to market ARS to the firm's customers as safe, highly liquid investments" and that it costs thousands of Morgan Keegan clients approximately $1.2 billion. The SEC charged Morgan Keegan with four counts of securities fraud in its lawsuit. The SEC asks the Court to return all "ill-gotten gains" and to require the "Defendant to repurchase all ARS that the Defendant sold prior to March 20, 2008".
However, the SEC action is not the only battlefront for Morgan Keegan as it fights similar lawsuits by FINRA. Investor Insight reports:
"Morgan Keegan also received a Wells notice from Financial Industry Regulatory Authority (FINRA), which stated discipline actions against the brokerage were forthcoming in connection to sales of a group of proprietary mutual funds.
The now-controversial funds at the focus of the SEC and FINRA regulatory notices are the same funds facing hundreds of arbitration claims by investors who allege that Morgan Keegan misrepresented the products as low-risk and high-yield investments. In truth, the funds held huge concentrations of subprime mortgages and corporate junk bonds.
The risky composition of the RMK funds eventually spelled financial disaster for investors beginning in the summer of 2007 and the subsequent collapse of the housing market. Since then, investors have filed scores of arbitration claims with FINRA, winning a total of about $4 million in awards so far.
According to recent analyses of the Morgan Keegan funds, losses in the funds entailed more than $2 billion between March 31, 2007, and March 31, 2008." Article
Morgan Keegan is also appealing recent arbitration awards to former clients. One can only guess if such actions are merely Morgan Keegan playing hardball or if the firm is trying to delay losing more money. The Investment Fraud Lawyer Blog reports:
"Morgan Keegan is engaging in a rarely used hardball tactics in three arbitrations arising out of sales of its proprietary bond mutual funds in which arbitration panels have awards. So far, Morgan Keegan has moved to vacate awards issued in three cases involving more than $1 million in damages, attorneys’ fees and costs.
As a condition to opening their accounts, Morgan Keegan required its customers to sign an agreement to arbitrate all disputes and waive their rights to go to court. These customers have prevailed in the mandatory arbitration process. Their attorneys point out that Morgan Keegan’s tactics have the effect of prolonging their clients’ trouble and expense as well as delaying payment of the awards." Article
Morgan Keegan has lost other arbitration awards. A panel awarded $285,000 to Jackson resident Gerald Humphries, $75,000 to a Little Rock doctor, $950,000 to a former NFL star, and nearly $700,000 to a former Regions bank president. Morgan Keegan is also under the gun for problems with a company it owns, Athletic Resource Management, Inc., home of well-known sports agent Jimmy Sexton, as it was ARM that represented Woods and other professional athletes. A quick review of PACER shows a multitude of lawsuits filed against Regions/Morgan Keegan such as this one filed by a member of a 401k plan and a lawsuit filed by a shareholder against Regions, Morgan Keegan, and its directors.
Questions have been raised over whether Regions is insolvent or not after the release of its last earnings statements. See earlier post The question must be asked whether the Morgan Keegan snakepit will cause Regions to go the way of Indymac and Colonial.
List of Regions SEC filings
List of insider transactions
Thursday, August 20, 2009
Is Morgan Keegan a Snakepit for Regions?
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4 comments:
That lawsuit filed by a participant in the 401(k) plan has legs. This could get real ugly as MK acted as trustee of the assets. Depending on how much money was lost in the plan, somebody will get paid (if the bank doesn't fold before said payday). Additionally, Qualico will be held liable as well, since someone there had to 'bless' the plan and its investments before it was rolled out to the participants. Ouch.
One more thing. Bet this isn't the only 401(k) lawsuit out there for Regions. Which imo is worse than the individual claims that are in arbitration now. MK sought out plans with millions in assets, not the small mom & pop plans. So compound those indvidual claims by most of the 401(k) plans they had on the books (b/c you know most of their plans had those funds as an investment option). It's a triple wammy for Regions since MK was the broker, the fund (read investment choice) and the trustee. Yikes.
Why would that NY billionaire go all in with Regions if they are about to go under?
So he'll have first dibs!
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