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The following story appeared in The Commercial Appeal on November 1, 2011:
Investors who lost money in failed Morgan Keegan & Co. mutual funds are expected to soon receive partial reimbursements for their losses.
Mississippi Secretary of State Delbert Hosemann said a company was hired to hand out $200 million to investors in Alabama, Kentucky, Mississippi, South Carolina and Tennessee.
A.B. Data Ltd., Milwaukee, will distribute to investors the fine collected from Morgan Keegan by the U.S. Securities and Exchange Commission following a probe.
Memphis-based Morgan Keegan accepted the fine in June and admitted no wrongdoing. The $200 million payment went into an S.E.C. Fair Fund and States Fund, both of which were set up to provide partial reimbursement to investors.
About 30,000 investors lost $1.5 billion in seven Morgan Keegan mutual funds that collapsed in 2007. The mutual funds were eroded by mortgage bonds that lost value when the market for subprime housing loans disintegrated.
Accepting cash from the funds will not cause investors to give up rights in arbitration or any other cases they might bring against Morgan Keegan, Hosemann said.
Separately, Hosemann is seeking civil judgments against Morgan Keegan executives Gary Stringer, Brian Sullivan and Michele Wood.
Attorneys for the state official contend investors were misled. Morgan Keegan’s mutual funds contained risky securities such as subprime loans, but marketing material emphasized investment in safer government and corporate bonds and preferred stocks, lawyers said.
Sullivan was president and chief investment officer of Morgan Asset Management, an arm of Regions Financial Corp., the Birmingham owner of Morgan Keegan. Stringer was investment director for Morgan Keegan’s wealth management services division. Wood served as chief compliance officer of the mutual funds.
Atlanta lawyer Peter Anderson, representing the trio, insisted they were wrongly singled out and face considerable fines of $25,000 per violation.
In its case against Morgan Keegan, the SEC contended executives including James Kelsoe, senior portfolio manager of the mutual funds, inflated the funds’ per-share market values even after the subprime mortgages that backed them had collapsed.
Regions Financial is thought by banking analysts to be close to spinning off Morgan Keegan to a private equity firm.