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Public Protection Cabinet

DFI v. Morgan Keegan

​The Kentucky Department of Financial Institutions (DFI) is part of a multi-state settlement and entry of consent orders with Morgan Keegan & Company (MKC), and Morgan Asset Management (MAM), and certain employees. This action is a direct result of intensive investigations led by regulators in Kentucky, Alabama, Mississippi, South Carolina and Tennessee in cooperation with several other states, along with the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).

A.B. Data Ltd. is the fund administrator that will distribute the $200 million settlement to investors who filed a claim. For more information, read the press release or use the contact information below.

A.B. Data Ltd.
888-208-9083 (business hours, central time zone)
http://www.morgankeegansettlement.com/

NOTICE: The state securities regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee are notifying investors entitled to reimbursement from the recent Morgan Keegan settlement that their States’ Fund distribution checks will be mailed Nov. 5, 2012. A.B. Data Ltd., as the Fund Administrator, will be mailing checks to all investors who filed an approved eligible claim within the claim filing period. On Nov. 5, A.B. Data will issue 1,930 checks totaling $4,663,240 to Kentuckians. To learn more, read the press release.

The deadline to file a claim to participate in the Morgan Keegan Bond Fund Claims Process was June 16, 2012. Late filings will not be accepted. For more information, read the Letter to Claimants.

Morgan Keegan Settlement
Claims Administrator
c/o A.B. Data Ltd.
PO Box 170500
Milwaukee, WI 53217-8091

 

Case Information

The states’ joint administrative actions alleged that the firms and certain employees misled investors by failing to disclose risks regarding the mutual funds and providing misleading information about products. The action also cites that the company had due diligence and supervisory failures.

The investigation centered around seven proprietary mutual funds sold by Morgan Keegan broker dealers to more than 30,000 account holders. Those seven mutual funds lost approximately $1.5 billion from March 31, 2007 to March 31, 2008. More than 2,000 Kentucky investors sustained about $50 million in losses. The states’ joint administrative actions against Morgan Keegan, Morgan Asset Management and certain employees, alleged that the firms:
  • Made material omissions and misrepresentations in marketing materials,
  • Made material omissions and misrepresentations in regulatory filings,
  • Withheld information from and misrepresented information concerning the funds to the Morgan Keegan sales force,
  • Provided preferential treatment to certain customers,
  • Failed to make suitable recommendations concerning purchases and concentration of the funds in customer accounts,
  • Failed to adequately supervise their employees, and
  • Obstructed the due diligence process.

The consent orders direct MKC and MAM to pay a total of $200 million, split between an SEC Fair Fund and a States’ Fund, both for the benefit of investors. MCK and MAM must pay all costs associated with the management of the funds and distribution of the settlement money. Investors will be notified and must file a claim with the fund administrator to recover damages suffered when the Morgan Keegan funds collapsed.

Highlights/excerpts of the consent orders (please refer to copies of the orders for complete details):
  1. MKC and MAM are ordered to pay a total of $200 million.  Of this $100 million will go to establish an SEC Fair Fund and $100 million will go to establish a States’ Fund, both for the benefit of investors. All costs, expenses and charges associated with the Fair Fund and the States’ Fund management and distributions shall be paid by MKC and MAM in addition to the funds established for investors. 
  2. MKC and MAM are prohibited from creating, offering or selling any proprietary funds for a period of two years. 
  3. In addition to regular audits and examinations, state regulatory authorities may conduct additional audits or examinations of the offices and branch offices of MKC and MAM; and, for the next two years, appropriate costs associated with these special audits or examinations will be paid by MKC/MAM.
  4. If MKC/MAM forms and sells any proprietary investment products before Jan. 1, 2016, for three years the firms are required to retain an independent auditor, at their expense. This auditor must be acceptable to a representative selected by state securities regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee, and the SEC.
  5. For the next three years MKC and MAM will provide special mandatory training to all firm registered agents and investment adviser representatives which is required to be comprehensive for each of the products and offerings sold or recommended to clients. Further, MKC and MAM must also conduct training on suitability and risks of investments. MKC and MAM shall develop and implement course evaluations in order to assess the effectiveness of the training.
  6. MKC and MAM are prohibited from having one person simultaneously hold the positions of general counsel and chief compliance officer.
  7. State securities regulators will continue the cases and charges against Brian B. Sullivan, Gary S. Stringer and Michele F. Wood, who were named in the states’ proceedings and who have not entered into the consent orders. 
  8. MKC and MAM are required to fully cooperate in current and future administrative proceedings against Sullivan, Stringer or Wood.
  9. James Kelsoe, the fund manager named in the states’ and SEC actions, settled charges with the states and was ordered to pay a total of $500,000 ($250,000 to states and $250,000 to SEC). Furthermore, Kelsoe agreed to the revocation of all of his existing registrations and/or licenses and to an order of permanent bar from involvement in the securities industry. Kelsoe cannot serve as an officer, director, or manager of, or issuer of interests in, a mutual fund, money market fund, pooled-investments or similar securities and investment vehicles which are publicly offered or sold.

Kentucky investors may contact DFI at 800-223-2579 with questions or to file a complaint. DFI cannot give investment advice, including recommendations of whether to use a particular broker, and DFI does not act as an investor’s attorney.

Morgan Keegan & Company, headquartered in Memphis, Tenn., is a registered securities broker-dealer, and Morgan Asset Management is a federal registered investment adviser headquartered in Birmingham, Ala. Both are wholly owned subsidiaries of Regions Financial Corporation. The companies are currently registered in Kentucky as a broker-dealer and investment adviser respectively and may continue to operate.

This settlement is a result of a joint notice that was filed by securities regulators in Kentucky, Alabama, Mississippi and South Carolina announced on April 7, 2010.
 
Additional Information 
  
June 28, 2011 -- Morgan Asset Management and Morgan Keegan
(Morgan Asset Management Inc., Morgan Keegan & Company Inc., James C. Kelsoe Jr., Brian B. Sullivan, Gary S. Stringer and Michele F. Wood)
Administrative Consent Order [PDF 1.9MB]
Morgan Keegan Enters Settlement With Regulators [PDF 110KB]
Morgan Keegan Q&A [PDF 288KB]
Morgan Keegan Joint Press Release [PDF 132KB]


2010 Notice Against MKC and MAM

April 6, 2010 -- Morgan Asset Management Inc., Morgan Keegan & Company, James C. Kelsoe Jr., Brian B. Sullivan, Gary S. Stringer and Michele F. Wood
Joint Notice of Intent to Revoke Registration and Impose Administrative Penalty - With Exhibits  [PDF 572KB]
 
NOTE: The above document contains embedded links to the exhibits. For those who would like to download or print the notice without the exhibits, please use this version: Joint Notice of Intent to Revoke Registration and Impose Administrative Penalty - No Exhibits  [PDF 525KB]

2010 Press Releases: