Sub Prime Securities Investment Law Blog

The year-end performance statistics are in and there are no huge surprises. Equity mutual funds made lackluster gains, and stock funds with mortgage or financial company holdings suffered losses. The worst sectors were financials and mortgage companies.

However, some funds suffered far more than the average losses, among them the Regions Morgan Keegan family of funds. “The worst-performing bond fund was the $190 million Regions Morgan Keegan Select High income, which plunged 59 percent because of losses tied to subprime mortgages” according to Bloomberg.com.

What can we learn from this? We know that these Morgan Keegan Funds were overexposed to subprime mortgages, and that their managers did not take the proper steps to mitigate the decline. Other bond funds were able to weather the subprime decline; the Regions Morgan Keegan funds were an exceptional case of mismanagement.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ainZkO4sUAtA

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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Early this month Morgan Keegan & Co. settled a lawsuit with the Indiana Children’s Wish Fund. This fund, which tries to help terminally ill children fulfill their last wishes, lost nearly $50,000 investing with Morgan Keegan. The primary culprit was the Regions Morgan Keegan Select Intermediate Bond Fund.

Andy Meek of The Daily News said the Indiana charity “was one of the first investors in the group of bloodied RMK funds to file a claim or lawsuit recently saying the funds’ volatility had not been fully disclosed.” Apparently, this is the case for many of the Regions Morgan Keegan Funds, most of which have suffered tremendously from the subprime mortgage fallout. In Memphis, further lawsuits have already been filed against the RMK Select Intermediate Bond Fund and the RMK Multisector Bond Fund.

The Morgan Keegan Funds were heavily laden with risky mortgage backed securities. Individual investors were not warned about the potential volatility of these funds. The RMK funds and their managers overexposed their funds to the subprime mortgage market, and the funds investors are bearing the losses from the mortgage fallout, and the managers should have been more responsible.

Read the full story:
http://www.memphisdailynews.com/Editorial/StoryLead.aspx?id=100438
http://www.memphisdailynews.com/Editorial/StoryLead.aspx?id=100478

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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In what can only the beginning of a slew of charges, several Regions Morgan Keegan funds have been named in a class action lawsuit out of Tennessee. Coughlin, Stoia, Geller, Rudman, & Robbins LLP filed a complaint in December naming, among others, the Morgan Keegan Select Fund Inc. and the RMK Multi-Sector High Income Fund, Inc.

The press release highlighted some specifics. “The complaint alleges that parts of the Funds’ portfolios have been invested in collateralized debt obligations (“CDOs”), including CDOs backed by subprime mortgages to higher-risk borrowers… As late of the summer of 2007, as the housing and credit crisis depended, MK Select and the RHY Fund continued to play down and conceal the Funds’ growing exposure to the problems in the subprime market.” It wasn’t until late in 2007 that the Regions Morgan Keegan fund managers fully admitted their risks in the face of the plummeting subprime market.

It is safe to assume that the Regions Morgan Keegan funds are not alone in their exposure to the subprime crisis. Mutual Funds, CDOs, and SIVs across the country bought up subprime debt with the promise of high returns while ignoring the inherent risks. Their casual disregard of the inherent volatility in the subprime mortgage market is sure to lead to further charges.

Read the Story:
http://markets.about.com/about?GUID=4148961&Page=MediaViewer&ChannelID=3191

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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Once again the subprime mortgage crisis is taking its toll on the average working American. Bloomberg Markets has recently described investments in Structured Investment Vehicles (SIVs) and Collateralized Debt Obligations (CDOs) by public funds across the United States. Both SIVs and CDOs invest heavily and opaquely in subprime mortgages, and fund managers are enticed by the potential returns and undisclosed risks.

SIVs are perhaps the most sinister investment vehicles. “SIVs finance themselves by selling asset-backed commercial paper, or short-term loans backed by collateral such as mortgages. When the subprime debt market blew up in August, investors stopped buying SIV commercial paper. As a result, in September and October, SIVs didn’t have the cash to pay debt holders of more than $8 billion of their paper.” These programs do not file with the SEC and do not publicly disclose financial statements. As a result, they can hide any and all risk associated with their investments.

State pension plans bought up SIVs and CDOs riddled with subprime debt and are now facing tremendous losses not only from market declines but from major default rates. As Bloomberg Markets David Evans says: “Until municipal fund managers learn to steer clear of traps like CDOs and SIVs, taxpayers’ money will be at risk—and it’s not likely anyone will tell them.” Taxpayers certainly aren’t the winners in the subprime mess.

http://www.bloomberg.com/news/marketsmag/mm_0108_story3.html

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Effect on Securities Markets , Institutional Investors

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