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Morgan Keegan to Pay $200M to Settle MBS Fraud Charges

""Morgan Keegan & Company"":http://www.morgankeegan.com and Morgan Asset Management agreed to pay $200 million to settle fraud charges related to subprime mortgage-backed securities (MBS), according to a statement from the Securities and Exchange Commission (SEC).


The Memphis-based firms, former portfolio manager James C. Kelsoe Jr., and comptroller Joseph Thompson Weller were accused of false valuations related to subprime mortgage securities in five funds managed by Morgan Asset Management from January 2007 to July 2007.

In addition to the firms' settlement, Kelsoe agreed to pay $500,000 in penalties and was barred from the securities industry, and Weller agreed to a penalty of $50,000.

According to the SEC, Morgan Keegan failed to employ reasonable pricing procedures and did not calculate accurate ""net asset values"" (NAVs) for the funds. Morgan Keegan published the inaccurate daily NAVs and sold shares to investors based on 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. ""Such misconduct does grievous harm to investors.""

Under the settlement, Morgan Keegan will 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. The company will pay another $100 million into a state fund also distributed to investors.

The firms are also required to abstain from involvement in valuing fair valued securities on behalf of investment companies for three years.

""This enforcement action makes clear that the SEC will deal firmly with those who abuse their responsibility to assign accurate values to securities or other assets held by funds,"" said William Hicks, associate director for the SEC's Atlanta regional office.

Morgan Keegan's parent company, ""Regions Financial Corp."":http://www.regions.com, has announced its intention to explore selling the subsidiary.

""Morgan Keegan has been a subsidiary of Regions since 2001 and is a leading brokerage and investment banking firm … and a very valuable franchise,"" said Regions president and CEO, Grayson Hall. ""However, the resolution of this legacy regulatory matter gives Regions greater flexibility with respect to the Morgan Keegan franchise and the ability to explore opportunities that are consistent with our strategic and capital planning initiatives.""

About Author: Heather Cernoch


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