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Morgan Keegan Bond Funds Overview

Morgan Keegan Mismanagement Leads To Massive Bond Fund Losses For Investors

Memphis-based Regions Morgan Keegan (RMK) continues to be the central figure in a growing list of arbitration claims and class-action lawsuits from investors who say the brokerage firm and several of its managers intentionally hid the credit risks of six RMK bond funds. It wasn't until long after the funds plummeted in value that RMK finally informed investors what they actually had been exposed to: toxic and risky debt products.

The six funds include both open-end and closed-end funds. Among them: the 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); Regions Morgan Keegan Select High Income Fund A (MKHIX); Regions Morgan Keegan Select High Income Fund C (RHICX); and the Regions Morgan Keegan Select High Income Fund I (RHIIX).

What each RMK fund shared in common, however, was an extremely high concentration of vulnerable securities tied to high-risk subprime mortgages, loans and other speculative debt.

Investors who purchased the Morgan Keegan bonds thought they were investing in a diversified portfolio composed of relatively conservative corporate bonds and preferred stocks. After all, that's what Morgan Keegan told them, and the funds' prospectuses appeared to back up those claims. The documents never revealed the true level of credit risk that shareholders actually were taking on as a result of purchases made by the funds' portfolio managers in high-risk, low-priority tranches of collateralized debt obligations (CDOs).

Now, a report from the Securities Litigation and Consulting Group (SLCG) is giving new credence to investors' charges against RMK. Regions Morgan Keegan: The Abuse of Structured Finance shows in stunning detail exactly how Morgan Keegan misrepresented the six funds in question and exposed investors to hundreds of millions of dollars of high-risk mortgage-backed securities.

SLCG's findings show that the devastating financial losses experienced by investors in the RMK funds were not, as Morgan Keegan contends, caused by a “flight to quality” or a “housing market meltdown.” Rather, the losses are because of the high-risk nature of the CDOs, the collateralized mortgage obligations (CMOs), and asset-backed securities (ABS) held in the funds' portfolios.

The report also concludes that Morgan Keegan clearly failed in its duty to exercise appropriate risk management over the funds. Had Morgan Keegan management performed even a rudimentary analysis of the funds' holdings (which they claim to have done), they would have discovered that investors were exposed to as much as 10 times the credit risk of the underlying, already risky, debt in exchange for 1% or 2% higher returns than a diversified, transparent high-yield bond portfolio would have earned.

RMK's failings in the fiduciary duty department ultimately created a financial nightmare for investors. The six RMK funds have plummeted more than 60% on average in value, with investors across the country losing $2 billion from March 31, 2007 to March 31, 2008. By comparison, similar bond funds posted positive returns or only modest losses.

Investors in the Morgan Keegan funds ranged from retirees and families saving for their children's college education to pension funds, charities, foundations, small businesses and corporations. They thought their money was going toward a safe, conservative investment. Had they known the truth - the fact that RMK management was secretly exposing a significant portion of the funds' assets to risky and toxic mortgage-backed securities - they most certainly would have thought twice about their decision.

If you believe you were not made aware of the risks associated with a particular RMK fund, contact us today at 866-827-6537.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.


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