Sub Prime Securities Investment Law Blog

If you own one of these funds you probably know that Morgan Keegan's High Income and Intermediate Bond Funds crashed and burned in 2007, losing over 50% of their value in a year. The problem began when the value of the funds' assets (which included lots of securities tied to toxic subprime mortgages) collapsed. At that point hordes of understandably anxious fund owners said "enough" and began redeeming their shares , forcing the funds to sell assets for cash. The rush to the exits hardly slacked off in August when the Morningstar mutual fund newsletter questioned whether either fund could recover from their losses. Morgan Keegan's solution to the "problem" of shareholders who want their money back came on March 4, 2008, when the funds amended their prospectus to give them the right to limit the amount of cash paid on redemptions. In fact, Morgan Keegan now claims the right to require redeeming shareholders to accept the funds' securities in place of cash. So if you have ever wanted to own your own collateralized debt obligation, this could be your chance. And if that sounds good, there's a bridge in Brooklyn you might consider buying.

Brian N. Smiley

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“They” are the giants of Wall Street. “They” are the folks who pumped billions of dollars of bonds backed by subprime mortgage obligations into the hands of unsuspecting investors like you. These loans are called subprime because they were made to people who were likely to be unable to repay them. Subprime loans were made to borrowers who had low credit scores, a history of late payments, or even recent bankruptcies. These subprime loans were then bundled and “repackaged” by financial institutions into securities with impressive names such as collateralized debt obligations (CDOs) that were snapped up by banks, traders, and hedge funds in the United States and throughout the world. “They” meaning brokerage firms, might have even foisted CDOs on you in bond mutual funds your broker told you were a safe place to stash money you weren’t willing to risk in the stock market.

Continue reading "THE SUBPRIME MESS: WHY WHAT “THEY” SOLD YOU WASN’T AND STILL ISN’T WHAT YOU NEED" »

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Posted In: Effect on Securities Markets , Morgan Keegan Bond Funds , Regions Morgan Keegan

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In a comparison of bond funds, Regions Morgan Keegan’s Select High Income Fund was cited as one of the worst disasters of 2007, due to its losses from exposure to investments backed by subprime loans.

Read the story by the San Francisco Chronicle:

http://www.sfisonline.com/cgi-bin/article.cgi?f=/c/a/2008/01/03/BU42U86EG.DTL&hw=ultra&sn=010&sc=273

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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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

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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

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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

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Several Regions Morgan Keegan Funds, such as the RMK Select High Income Fund and the RMK Select Intermediate Bond Fund have been facing tough times due to their exposure to subprime debt. The funds’ dramatic losses have sparked another phenomenon, a rush from shareholders to get out.

Bloomberg.com reports that “Morgan Keegan, with more than $7.4 billion in assets under management, said in an Aug. 30 SEC filing that three of its bond funds would delay semi-annual regulatory reports because ‘recent instability’ in fixed income markets required ‘a more extensive process’ to verify the values of certain securities. Of the three, Regions Morgan Keegan Select High Income Fund and Regions Morgan Keegan Select Intermediate Bond Fund have ‘experienced significant net redemptions,’ according to an Aug. 13 notice to investors. Should they need to sell securities to pay departing shareholders, getting a ‘fair’ price ‘may be difficult,’ the notice said.”

That notice can’t be encouraging to shareholders. It is understandable why they want to get out as fast as possible.

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

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Dramatic losses and direct fallout from the subprime crisis appears to be focused on a few funds, like several Regions Morgan Keegan funds.

Trouble was apparent in early July, when rating agencies downgraded securities backed by subprime loans. Fortunately for most investors, few mutual funds were concentrated in investments backed by subprime debt.

Read the story by Morningstar:

http://articles.moneycentral.msn.com/Investing/Morningstar/SubprimeMessSeepsIntoMutualFunds.aspx?page=1

Posted by Kirk Reasonover | Permalink | Email This Post

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Jim Kelsoe managed the Morgan Keegan Select High Income Fund and the Regions Morgan Keegan Select Intermediate Bond Fund leading up to the subprime debacle that swept through our country in the middle of 2007.

In July, Bloomberg reported that “Kelsoe’s fund ranks last of 93 high-yield rivals and it’s the eighth-worst performer this year of more than 550 U.S.-based bond funds tracked by Bloomberg.” Bloomberg reported that Kelsoe admits to an “intoxication” with high yield funds, most of which were exposed to subprime mortgages. And July was before the fun really started.

In November, Michael Brush of MSN money noted that Kelsoe’s Regions Morgan Keegan Select High Income Fund had dropped nearly 50% in 2007. Brush wrote: “Kelsoe said that 14% of the Select High Income fund portfolio was linked to subprime mortgages. He said many debt instruments in his portfolio no longer trade.”

Although Jim Kelsoe may not be the one to blame for the subprime mortgage fallout, Regions Morgan Keegan shareholders are likely to blame him for overexposing them to securities backed by weak collateralized debts.

Read the full story:

http://articles.moneycentral.msn.com/Investing/CompanyFocus/WhosToBlameForTheMortgageMess.aspx
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4zWcz95eTAw

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Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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Regions Morgan Keegan Select High Income Fund, a mutual fund with $1 billion in holdings, stood out for its significant holdings in risky subprime loans. As of the end of March the fund had more than 16% of its assets invested in securities that either were rated “below investment grade” or were “unrated” by rating agencies. The collateral debt obligations were also concentrated in mortgage-related securities, which made up about half of the holdings. The fund among the worst performing mutual funds for recent months and was recognized for taking a hit, due to exposure to risky subprime loans.

Read the story:
HTTP://WWW.CREDITFLUX.COM/DIGEST/2007/07/16/NEW+STORY.HTM

Posted by Kirk Reasonover | Permalink | Email This Post

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As of late February, the Regions Morgan Keegan Select High Income Fund (MKHIX), a $1.16 billion fund, held roughly fourteen percent (14%) of its portfolio in securities backed by subprime loans. James C. Kelso Jr., manager of the fund, said that he intended to hold onto the subprime investments and discounted concerns of analysts and other professional fund managers.

Kelsoe indicated that the Regions Morgan Keegan Fund was insulated from loss, because of better screening of its investments. Kelsoe claimed that "most of what we're holding is [loans underwritten] between '03 and '05," when subprime lending standards were much stronger. Kelsoe discounted recent losses, stating, "These things go in cycles."

Other analysts warned that default rates could worsen losses. In particular, they warn that the investments are complex, and the stated pricing of mortgage-backed securities might not truly reflect the impact of defaults.

Read the Business Week story:
http://www.businessweek.com/magazine/content/07_26/b4040605.htm

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On March 14, 2007, the New York Times reported that mutual funds holding investments backed by subprime loans, including mortgage backed securities, would “probably be hurt by the turmoil that is tearing through the residential mortgage market.”

Regions Morgan Keegan mutual funds were recognized as being at risk for having a substantial portion of its assets invested in “unrated mortgage-backed securities” or investments that were “below investment grade.” The Regions Morgan Keegan mutual funds were distinguished from other funds that only purchased investments backed by subprime loans when the investments were rated highly by credit rating agencies like Moody’s Investors Service, Standard & Poor’s and Fitch.

Investments in junk bonds are likely to suffer in the event of adverse market conditions and should not be sold to conservative investors.

Read the New York Times story:

http://www.nytimes.com/2007/03/14/business/14debt.html?_r=1&pagewanted=all&oref=slogin

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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On March 7, 2007, Jeffrey Gunlach spoke out at the annual investment conference sponsored by Morningstar U.S. He recognized that the unmitigated disaster associated with the subprime meltdown was “only going to get worse.” The article states that while “most bond-fund managers have limited subprime exposure,” the Regions Morgan Keegan Select High Income fund has taken a greater hit.

Read the story at:

http://www.morningstar.co.uk/UK/Funds/article.aspx?lang=en-GB&articleID=51687&categoryID=5

Posted by Kirk Reasonover | Permalink | Email This Post

Posted In: Morgan Keegan Bond Funds , Regions Morgan Keegan

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