Charges have been brought against Memphis-based Morgan Keegan for lying about the asset values in some of their fund products. To whom did they lie? Both the clients AND the retail brokerage sales force, alleges the SEC.
According to regulators, investors lost over $1 billion dollars from this fraud.
Floyd Norris has the scoop…
From the New York Times:
WHEN the subprime credit structure began to shake and then to crumble, money managers who had invested in it were faced with hard decisions.
The first was whether to bail out or double down, either admitting error or asserting that the market was overreacting. The second was what to tell investors and the brokers who dealt with them. What values should be assigned to securities that no one wanted to buy?
Regulators charged Wednesday that the decisions made at the Morgan Keegan brokerage firm were to lie to investors and its brokers. Officials say the firm used fictitious securities values to make losses appear smaller than they were.
In proceedings filed by the Securities and Exchange Commission; the Financial Industry Regulatory Authority, known as Finra; and four Southern states, Morgan Keegan was accused of misleading brokers and customers through marketing materials that did not disclose the risks being taken by a group of funds sold only to Morgan Keegan clients.
This is an amazing story – an instance where a brokerage product manager, possibly with the consent of the firm’s leadership, puts one over on the sales force itself. Click over to read the rest.