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Regions Morgan Keegan: Paying the Price of Securities Fraud

January 1, 1970 · FLEMING | NOLEN | JEZ, L.L.P.

In June, Regions Morgan Keegan and it senior managers began to understand what price they would pay for their negligence and misrepresentations to investors. The investigation by the Alabama Securities Commission (ASC), the Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) was concluded when the parties entered into the June 2011 administrative consent order.

The consent order outlined the factual findings related to Morgan Keegan, Regions Financial Corporation, Morgan Asset Management and James C. Kelso, Jr.’s role in defrauding investors related to the Regions Morgan Keegan Funds (Select High Income Fund A, Select High Income Fund C, Select High Income Fund I, Select High intermediate Bond Fund A, Select High intermediate Bond Fund C, and Select High intermediate Bond Fund I.)

The consent order conclusions of law included the following:

  • Morgan Asset Management failed to disclose the risks associated with the Regions Morgan Keegan Funds.
  • Morgan Asset Management inappropriately classified $400,000,000.00 (four hundred million dollars) of asset-backed securities as corporate bonds and securities instead of as structured debt investments.
  • Morgan Keegan did not correctly categorize the Regions Morgan Keegan Funds in their marketing and disclosure materials.
  • Morgan Keegan failed to disclose the true risks of volatility and illiquidity related to the Regions Morgan Keegan Funds.
  • James C. Kelso, the Senior Portfolio Manager and employee of Morgan Keegan, worked outside his structured role.
  • James C. Kelso failed to supervise and perform due diligence reviews of the Regions Morgan Keegan Funds.

As a result of the misrepresentations and failures, Morgan Asset Management was ordered to pay $200,000,000.00 (two hundred million dollars) to the Fair Fund and an additional $1,700,000.00 (one million seven hundred thousand dollars) to the ASC. James C. Kelso, Jr, had his licenses revoked and can no longer serve as an officer, director, or manager of any investment fund or security. He was also ordered to pay $250,000.00. Finally, Regions Morgan Keegan and their employees are paying the price.