Tuesday, April 16, 2013

Holding Morgan Keegan fund directors liable

From: RDShatt@aol.com
To: jean.eaglesham@wsj.com, kirsten.grind@wsj.com
CC: kwhitehouse@nypost.com, alan.zibel@dowjones.com, matthias.rieker@dowjones.com, deroberts@charlotteobserver.com
Sent: 4/16/2013 8:52:18 A.M. Central Daylight Time
Subj: Former Morgan Keegan Fund Directors to Settle With SEC

Dear Ms. Eaglesham and Ms. Grind,

As you probably know, besides the SEC civil enforcement action your March 28th article reports on, there is a private securities class action lawsuit going on against Regions Morgan Keegan, which had a fairness hearing on April 12th. See http://www.rmkclosedendfundsettlement.com/.

I think the private class action against Regions Morgan Keegan seeks a faux recovery and has a faux deterrent purpose and effect. As a member of the plaintiff class, I did my best to convey the same to the Court and to the parties. If you are interested in more information, please go to this entry in my blog.

Thank you.

Rob Shattuck
Birmingham, AL

  • The Wall Street Journal

Former Morgan Keegan Fund Directors to Settle With SEC

Eight former directors of Morgan Keegan Inc. mutual funds have agreed to a deal with the Securities and Exchange Commission to settle a civil enforcement action that attracted attention because of the agency's wider efforts to hold fund boards accountable.
The settlement still has to be approved by commissioners who lead the SEC, and terms of the proposed deal haven't yet been publicly disclosed.
The SEC and former directors this week filed a joint legal motion asking a judge to agree to put on hold a hearing on the case that was scheduled to start on Tuesday.
[image]Mike Brown/The Commercial Appeal/ZUMAPRESS
Morgan Keegan settled civil-fraud charges tied to its funds in 2011.
The two sides have "agreed in principle to a settlement on all major terms," the legal filing said. A stay to the hearing is "appropriate to afford the parties an opportunity to present the settlement offer to the Commission," it added.
Peter Anderson, a lawyer for the two former directors who were Morgan Keegan employees, said, "We're anxious to have [the proposed deal] before the Commission and get it approved and put this matter to a close."
A spokesman for the SEC and a lawyer acting for the six former independent directors declined to comment.
Regions Financial Corp., which owned Morgan Keegan at the time of the alleged wrongdoing has previously declined to comment on the SEC action against the former directors.
The pact resolves a legal action that has caused waves in the $13.5 trillion mutual-fund industry since it was filed by the SEC in December.
"The industry was watching this case," said Marguerite Bateman, a partner at law firm Schiff Hardin LLP.
The former directors sat on the boards of five Morgan Keegan funds that blew up in the financial crisis, racking up losses of more than $1 billion for investors.
In 2011, Morgan Keegan paid $200 million to settle civil fraud allegations that certain assets in the funds were overvalued, without admitting or denying wrongdoing. The portfolio manager who ran the mutual funds paid $500,000 and agreed to a lifetime ban from the securities industry.
The SEC alleged in its action that the eight former directors of the funds "abdicated" their responsibilities by failing to ensure that risky subprime assets held by the funds were valued correctly.
When the action was filed, the former directors all denied any wrongdoing.
The terms of the deal will likely be scrutinized by the 2,200 or so independent directors who oversee mutual funds, as well as fund professionals.
Some legal experts say the SEC decision to pursue the former directors marked a break from past practice. Until now, the agency has typically taken enforcement action against boards only in exceptional cases where there is an allegation the directors were complicit in fraud.
Fund directors have been waiting for guidance on how to handle valuations in the fund portfolios they oversee, rules that have only vaguely been outlined by the SEC over the years, said Ms. Bateman.
She added that if details of the Morgan Keegan settlement are made public, that will hopefully guide directors in the future.
Write to Jean Eaglesham at jean.eaglesham@wsj.com and Kirsten Grind at kirsten.grind@wsj.com
A version of this article appeared March 29, 2013, on page C2 in the U.S. edition of The Wall Street Journal, with the headline: Former Fund Directors to Settle With SEC.

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