Yet another investor has found justice over losses caused by the collapse in value of several Morgan Keegan bond funds that owned securities backed by risky subprime mortgages. On March 12, the Financial Industry Regulatory Authority (FINRA) ruled in favor of Alabama investor Philip Willingham, awarding him $187,000.
“It is becoming apparent that the evidence investors are now able to present about the scope of Morgan Keegan’s misconduct is allowing arbitrators to better understand it,” said Indiana lawyer Mark Maddox, who handled the recent case, in a March 13 article in the Birmingham News. Maddox is the founding partner of the law firm Maddox Hargett & Caruso, P.C.
The legal issues surrounding Morgan Keegan focus on a group of open-end and closed-end bond funds. They are: Regions Morgan Keegan Select High Income-A (MKHIX); Regions Morgan Keegan Select High Income-C (RHICX); Regions Morgan Keegan Select High Income-I (RHIIX); RMK High Income Fund (RMH); RMK Strategic Income Fund (RSF); Regions Morgan Keegan Select Intermediate Bond Fund-A (MKIBX); Regions Morgan Keegan Select Intermediate Bond Fund-C (RIBCX); Regions Morgan Keegan Select Intermediate Bond Fund-I (RIBIX); and RMK Multi-Sector High Income (RHY).
Because of their exposure to high-risk mortgage-backed securities, some of the RMK funds have fallen in value by more than 90%. In total, investors in the funds have faced more than $2 billion in losses.
When investors initially placed their money in the RMK bond funds, they were told by the funds’ management, including former Morgan Keegan manager Jim Kelsoe, they had invested in a diversified portfolio composed of relatively conservative corporate bonds and preferred stocks. As it turns out, the bond funds invested in high-risk, low-priority tranches of collateralized debt obligations (CDOs).
“This [recent] arbitration award affirms our view that Morgan Keegan engaged in a massive scheme to defraud many investors, including Philip Willingham, in the sale of its bond funds,” says Maddox.