The Securities and Exchange Commission (“SEC”) charged eight ex-Morgan Keegan mutual fund directors with violations of the federal securities laws for allegedly failing to properly oversee the valuation of assets in the funds. Morgan Keegan was acquired from Regions Financial Corp. by Florida-based Raymond James in April 2012.
The funds at issue are the RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Strategic Income Fund, RMK Advantage Income Fund and the Morgan Keegan Select Fund (collectively “Funds”.) The former fund directors named in the SEC’s complaint are J. Kenneth Alderman of Birmingham, Alabama; Jack Blair of Germantown, Tennessee; Albert Johnson of Hoover, Alabama; James Stillman McFadden of Germantown, Tennessee; Allen Morgan, Jr. of Memphis, Tennessee; W. Randall Pittman of Birmingham, Alabama; Mary Stone of Birmingham, Alabama and Archie Willis III of Memphis Tennessee (collectively “Directors”.)
According to the SEC, federal securities laws require mutual fund directors to determine the fair value of fund securities for which market quotations are not readily available. The SEC claims that more than half of the Funds’ net asset values were comprised of fair-valued securities.
The SEC alleges that the Directors failed to provide adequate supervision and guidance on how the valuations should be made to the valuation committee they charged with determining the fair values of the Funds’ assets. According to the SEC, the Directors only received very limited information about the Funds’ fair value determinations and did not request any information regarding the basis for the assigned fair values.
The SEC alleges that the fair value securities in the Funds were materially misstated from March 31, 2007 to August 9, 2007. Previously, the SEC charged the Funds’ managers with fraud in connection with overvaluation of the securities in the Funds that were backed by subprime mortgages. That matter was settled for $200 million.