Securities Fraud Attorney Blog

Below is the Regions press release related to regulatory order for it to pay $200 million due to its actions related to the Morgan Keegan bond funds. Strangely, it announced also that it retained Goldman to explore selling Morgan Keegan. Regions has been extremely aggressive in defending the scores of arbitration claims filed by aggrieved investors of the Morgan Keegan bond funds, even consistently challenging in court arbitration awards it's lost. A big issue going forward for our clients and other investors with pending arbitrations is how will the restitution fund, the SEC Order, the FINRA AWC and the potential sale of Morgan Keegan effect the cases.

Morgan Keegan Settles Regulatory Issues with SEC, FINRA, and State Regulators Regarding Former Fund Management Business; Regions to Explore Strategic Alternatives for Morgan Keegan

BIRMINGHAM, Ala., Jun 22, 2011 (BUSINESS WIRE) -- Regions Financial Corp. (NYSE:RF) announced today that its brokerage and investment banking subsidiary, Morgan Keegan & Company, Inc., and its asset management subsidiary, Morgan Asset Management, have agreed to a settlement of previously disclosed regulatory matters with the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and a group of state securities regulators with respect to issues concerning certain mutual funds and closed-end funds (the RMK Funds), a business that Morgan Asset Management divested in 2008.

As part of the settlement, Morgan Keegan and Morgan Asset Management agreed to pay $210 million, of which $200 million will be placed into two Fair Funds for the benefit of investors in the RMK Funds in any state. The full amount of the settlement was previously accrued.

Regions also announced that with these regulatory matters settled, and as part of its ongoing capital planning process, it has retained Goldman, Sachs & Co. to explore potential strategic alternatives for Morgan Keegan as Regions evaluates how best to manage its capital to increase shareholder value. Morgan Asset Management and Regions Morgan Keegan Trust are not included in this review.

Regions President and CEO Grayson Hall said, "Morgan Keegan has been a subsidiary of Regions since 2001 and is a leading brokerage and investment banking firm based in the Southeast and a very valuable franchise. 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.

"Regions is committed to continuing to provide a full range of products and services seamlessly to its customers, including through a continuing relationship with Morgan Keegan," Hall said.

John Carson, CEO of Morgan Keegan said, "Morgan Keegan is excited by the opportunity to further develop the brand that we have built over the last 40 years. Morgan Keegan's core businesses remain strong and, with this settlement behind us, we look forward to continuing to serve our individual, institutional and investment banking clients and to growing our business."

Settlement details

The $210 million payment consists of:
$200 million paid into two Fair Funds, one administered under instructions from the SEC, and another administered under instructions from the states, with $100 million to be paid into each of the two funds; and
A penalty of up to $10 million to be paid to those states that join in the settlement.
The five states initially included in the settlement are: Alabama, Kentucky, Mississippi, South Carolina, and Tennessee. The $10 million state penalty will be shared among any participating states.
An Administrator will identify the investors in the Funds who suffered losses, evaluate investor claims and distribute the funds. The Fair Funds are available to investors in every state without regard to whether their state is participating in the settlement.

About Regions Financial Corporation

Regions Financial Corporation, with $132 billion in assets, is a member of the S&P 500 Index and is one of the nation's largest full-service providers of consumer and commercial banking, trust, securities brokerage, mortgage and insurance products and services. Regions serves customers in 16 states across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,800 banking offices and 2,200 ATMs. Additional information about Regions and its full line of products and services can be found at www.regions.com.

About Morgan Keegan

Morgan Keegan & Company, Inc., a full-service brokerage and investment banking firm, is the securities brokerage arm of Regions Financial Corp. (NYSE: RF). Headquartered in Memphis, Tenn., Morgan Keegan serves individual and institutional investors in over 300 offices in 20 states. Additional information about Morgan Keegan can be found at www.morgankeegan.com.

SOURCE: Regions Financial Corporation

Regions Financial Corp.
Media:
Tim Deighton, 205-264-4551
or
Investor Relations:
List Underwood, 205-801-0265

Below is FINRA's press release of the $200M restitution order the SEC and FINRA levied on Regions Morgan Keegan (RMK) related to bond funds it misrepresented to investors. Big for investors. We had blogged about this in April 2010 when the SEC charged Morgan Keegan & Company, Morgan Asset Management and two employees with fraudulently overstating the value of securities backed by subprime mortgages. These were the first federal government allegations related to the Regions Morgan Keegan bond funds which lost significant value in 2008. Many law firms around the U.S., including our firm, have been retained by investors who lost money in the Regions Morgan Keegan funds. Big fight will be to get fines into evidence during the pending arbitrations.

Morgan Keegan Ordered to Pay $200 Million to Investors to Settle Allegations Regarding Sales of Bond Funds
Sales Materials Made Exaggerated Claims and Failed to Disclose Risks; Supervisory System Failures

WASHINGTON — The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and five state regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee announced today that each has settled enforcement proceedings against Morgan Keegan & Company, Inc. Morgan Keegan will pay restitution of $200 million for customers who invested in seven affiliated bond funds, including the Regions Morgan Keegan Select Intermediate Bond Fund (Intermediate Fund). Morgan Keegan's affiliate, Morgan Asset Management, managed the funds.

FINRA found that from the beginning of Jan. 2006 to the end of Sept. 2007, Morgan Keegan marketed and sold the Intermediate Fund to investors using sales materials that contained exaggerated claims, failed to provide a sound basis for evaluating the facts regarding the fund, were not fair and balanced, and did not adequately disclose the impact of market conditions in 2007 that caused substantial losses to the value of the Intermediate Fund.

The Intermediate Fund invested predominantly in structured products, including mezzanine and subordinated tranches of structured securities including sub-prime products. Morgan Keegan marketed the Intermediate Fund as a relatively safe, investment-grade fixed income mutual fund investment when, in fact, the fund was exposed to risks associated with its investments in mortgage-backed and asset-backed securities, and subordinated tranches of structured products. By the beginning of 2007, Morgan Keegan was aware that the Intermediate Fund was experiencing difficulties related to the holdings in the fund impacted by turmoil in the mortgage-backed securities market yet failed to adequately disclose those risks in the sales materials or internal guidance. In March 2007, when adverse market conditions began to affect the fund, over 54 percent of the portfolio was invested in asset-backed and mortgage-backed securities, and 13.5 percent was invested in subprime products.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "FINRA acknowledges the efforts of the Securities and Exchange Commission and state securities regulators in resolving this matter against Morgan Keegan and providing restitution to harmed investors. Firms must ensure that their marketing materials fully and accurately describe the products they sell, including the attendant risks and any relevant information about market conditions that may impact those products. By not fully disclosing the risks, Morgan Keegan portrayed the Intermediate Fund as a safer investment than it was."

FINRA's settlement includes findings that Morgan Keegan failed to establish, maintain and enforce an adequate supervisory system, including written supervisory procedures reasonably designed to achieve compliance with NASD rules. Morgan Keegan's supervisory system and written procedures were not reasonably designed to ensure that its sales literature disclosed certain information as to risk and did not contain exaggerated claims. As a result, Morgan Keegan failed to adequately describe the nature, holdings and certain risks of the Intermediate Fund. In addition, beginning in 2007 when the particular risks associated with the Intermediate Fund's holdings began to impact negatively the holdings in the fund, Morgan Keegan failed to take steps reasonably designed to revise its advertising materials to inform customers of the specific risks of investing in the fund under the current market conditions.

This investigation was conducted by Gino Ercolino, David Fenimore, Gregory Firehock, Theresa Ridder and Richard Santiago of the Enforcement Department, with the assistance of FINRA's Advertising Regulation Department.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2010, members of the public used this service to conduct 17.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this complaint, as well as other disciplinary documents, in FINRA's Disciplinary Actions Online database.

What is it going to take for the SEC to respond accordingly to tips of insider trading and hedge-fund fraud? When initial suspicion of Bernie Madoff's widespread Ponzi scheme was discovered by FINRA, the SEC was slow to act on it. Now, multiple referrals from FINRA of suspicious trading at the hedge-fund firm, SAC Capital Advisors LP, have emerged and the SEC is hesitant to take further action once again. Below is the article from the Wall Street Journal regarding this issue.

Referrals on SAC Disclosed
By JEAN EAGLESHAM
June 16th, 2011

The Securities and Exchange Commission has received 65 referrals of suspicious trading at hedge-fund firm SAC Capital Advisors LP over the last decade, or 46 more than previously disclosed, according to Sen. Charles Grassley.

The Iowa Republican disclosed the additional referrals as part of a renewed demand that the SEC disclose how it handled the information. People familiar with the situation said the referrals include trading in the options market and on the New York Stock Exchange.

Other hedge funds and individuals are named in the documents from the Financial Industry Regulatory Authority, a self-policing body for Wall Street, these people said.

Sen. Grassley, the top Republican on the Senate Judiciary Committee, said "many" of the referrals involved trades older than the five-year legal time limit on bringing civil actions for insider trading. The older trades "would not appear to trigger any concerns regarding ongoing investigations," he said in a letter to SEC Chairman Mary Schapiro on Wednesday.

SAC, one of the most successful hedge-fund firms in the U.S., said it was "not surprised" that it has been the subject of 65 referrals since 2000. "Referrals by Finra are the result of surveillance of market-wide trading activity and they are neither findings nor allegations of insider trading," a spokesman for SAC said in a statement.

"Given the size of our firm, our active investment style, and the period covered, we are not surprised by the number of referrals. SAC has always cooperated fully with regulators and will continue to do so," the spokesman said.

Spokeswomen for the SEC and Finra declined to comment.

Last week, the SEC rejected a request by Sen. Grassley about how it responded to the first 19 referrals, citing confidentiality. SEC officials are concerned that disclosing the requested information could jeopardize ongoing investigations into SAC, according to people familiar with the matter.

Sen. Grassley has characterized the agency's treatment of the SAC trades as a test of how much it has overhauled enforcement practices following its failure to detect the Bernard Madoff fraud.

"Bernie Madoff is gone but not forgotten," Sen. Grassley said in a statement Wednesday. "The SEC is under scrutiny right now for good reason." SEC officials are angry at the lawmaker's actions, saying privately that insider trading is one of the agency's strongest areas of enforcement activity.

Robert Khuzami, the SEC director of enforcement, said in a letter to Sen. Grassley last week that the agency was "in a period of historic insider trading enforcement."

The SEC brought 53 insider trading cases against 138 individual and firms in the fiscal year that ended in September 2010, up 43% from a year earlier, Mr. Khuzami said.