Colling, Gilbert, Wright & Carter Securites Fraud

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Thursday, April 22, 2010

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Friday, April 16, 2010

SEC Charges Goldman Sachs with Fraud Related to Sale of Subprime Mortgage Securities

The Securities & Exchange Commission (SEC) charged investment banking giant Goldman Sachs with civil fraud related to the sale of subprime mortgage instruments to investors. The SEC also alleges a Goldman client (hedge fund giant Paulson & Co.,Inc.)bet against and influenced the prices of the same structured products Goldman created and touted to their clients. The complaint alleges the investors who were improperly sold the investments lost more than a billion dollars.

This is only the latest in a sobering string of large brokerage firms being charged with fraud related to the sale of misrepresented subprime-related investments.

The full April 16, 2010 Associated Press article may be found at:

http://www.msnbc.msn.com/id/36597290/ns/business-us_business/?GT1=43001

If you have lost money in a subprime related security or mutual fund, please contact our office for a free consultation. Thank you.

Labels: broker misconduct

posted by William B. Young Jr. Esq. at 9:02 AM

Tuesday, April 13, 2010

Tennesse Securities Regulators File Notice of Pending Administrative Action Against Morgan Keegan

On the heals of filing by the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and a joint filing by Alabama, Kentucky, Mississippi and South Carolina, the Securities Division of the Department of Commerce for the State of Tennessee has sent notice to Morgan Keegan of a pending administrative action for the marketing and sale of the RMK Morgan Keegan bond funds. Morgan Keegan is headquartered in Memphis, Tennessee.

The full text of the article appears below:

NASHVILLE- The Securities Division of the Department of Commerce and Insurance has commenced an administrative action today by serving upon Morgan Keegan and other respondents the notice required under the law as a prerequisite to the formal filing of a Petition.

The step comes as other state and federal regulators file administrative actions against Morgan Keegan & Company and Morgan Asset Management and their employees James C. Kelsoe, Brian B. Sullivan, Gary Stringer, and Michele Wood. The actions are a direct result of an intensive investigation involving numerous states including Mississippi, Alabama, Kentucky and South Carolina. Those states and the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority filed their own actions today. State law requires the Tennessee agency to serve a notice before filing an action.

At the center of the investigation were six proprietary bond funds sold by Morgan Keegan broker-dealer agents to approximately 13,000 customers nationwide. Those six proprietary bond funds lost approximately $2 billion dollars from March 31, 2007, to March 31, 2008. The state and federal agencies allege Morgan Keegan and Morgan Asset Management:

-Made material omissions and misrepresentations in marketing materials,
-Made material omissions and misrepresentations in regulatory filings,
-Withheld information from and misrepresented information concerning the funds to the Morgan Keegan Sales force,
-Provided preferential treatment to certain customers,
-Failed to make suitable recommendations concerning purchase and concentration of the funds in customer accounts,
-Failed to adequately supervise their employees, and
-Obstructed the due diligence process.

The notice served by the Securities Division provides an opportunity for the respondents to demonstrate their compliance with Tennessee law. These companies and individuals have a right to request an administrative hearing. Other states involved in the multi-state investigation are Arkansas, Florida, Georgia, Illinois, Louisiana, Missouri, North Carolina and Texas.

The Department of Commerce and Insurance works to protect consumers while ensuring fair competition for industries and professionals who do business in Tennessee.

If you have lost money from investing in any of the RMK bond funds, please contact our offices. Thank you.

posted by William B. Young Jr. Esq. at 6:34 AM

Friday, April 9, 2010

FINRA Files Administrative Complaint Against Morgan Keegan Over RMK Bond Funds

On Wednesday April 7, 2010, the Financial Industry Regulatory Authority (FINRA)issued a news release stating the SRO's Department of Enforcement has filed an administrative complaint against Morgan Keegan & Company, Inc., alleging the firm marketed and sold seven affiliated bond funds (RMK Funds) to retail investors using false and misleading sales materials. The complaint also states the RMK funds invested heavily in structured products which caused them serious financial difficulties beginning in early 2007 and led to their collapse later that year, costing investors over a billion dollars. Finally, the complaint alleges Morgan Keegan misled its own Financial Advisors as to the funds holdings and risk profiles. The complaint,in addition to an unspecified fine, seeks disgorgement of all ill-gotten profits and full restitution for affected investors.

In addition to the FINRA action, the Securities and Exchange Commission SEC filed a Administrative Cease-and-Desist Proceeding as well as four invidual state (Alabama, Kentucky, Mississippi and South Carolina) securities regulators filed a Joint Notice of Intent to Revoke Registration and Impose Administrative Penalty alleging similar misconduct on the part of Morgan Keegan. The FINRA press release acknowledges cooperation between the various regulatory agencies in investigating and filing the three complaints.

The full FINRA release appears below:

FINRA Seeks Fine, Disgorgement of Profits, Full Restitution to Customers

Washington, DC — The Financial Industry Regulatory Authority (FINRA) announced today that it has filed a complaint against Morgan Keegan & Company, Inc., charging the firm with marketing and selling seven affiliated bond funds to investors using false and misleading sales materials – costing investors well over $1 billion. In addition to an unspecified fine, FINRA is seeking disgorgement of all ill-gotten profits and full restitution for affected investors.

From Jan. 1, 2006, through Dec. 31, 2007, Morgan Keegan sold over $2 billion of the bond funds. The funds were invested heavily in risky structured products – particularly, subordinated tranches of asset- and mortgage-backed securities, including sub-prime products. Those investments caused the funds to experience serious financial difficulties beginning in early 2007 and led to their collapse later that year.

In its complaint, FINRA alleges that the misleading sales materials, combined with the firm's misleading and deficient internal guidance and failure to train its brokers about the risks, led Morgan Keegan's brokers to make material misrepresentations to investors. This was particularly acute with respect to one of the funds – the Regions Morgan Keegan Select Intermediate Bond Fund – which was marketed as a relatively safe and conservative fixed income mutual fund investment when, in fact, the fund was exposed to undisclosed risks associated with its investment in mortgage- and asset-backed securities and subordinated tranches of structured products.

FINRA also alleges that, despite the negative impact on the bond funds in early 2007 – caused by the turmoil in the mortgage-backed securities market, most notably in the sub-prime home equity arena – Morgan Keegan failed, in any of its 2007 sales materials related to any of the bond funds, to disclose this to customers or that a substantial portion of the bond funds' portfolios were acutely affected by then-current economic conditions.

In its complaint, FINRA further alleges that Morgan Keegan failed to establish, maintain and enforce an adequate supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with federal securities laws and FINRA rules.

Specifically, FINRA's complaint alleges that:

In its research, investment advice and performance updates to its brokers regarding the Intermediate Fund, Morgan Keegan failed to disclose the material characteristics and risks of investing in the fund, misstated the appropriate use of the fund and otherwise portrayed the fund as a safer investment than it was, even though the firm was aware of material, special risks that made the fund unsuitable for many retail investors. Morgan Keegan failed to ensure the accuracy of the advertising materials prepared by the fund manager and distributed by the firm, and failed to ensure that those materials disclosed all material risks, were not misleading and did not contain exaggerated claims. Morgan Keegan failed to train its brokers regarding the features, risks and suitability of the fund and, in its communications with its brokers, the firm failed to adequately describe the nature of the holdings and material risks of the Intermediate Fund.

When Morgan Keegan became aware, beginning in early 2007, of the adverse market effects on the bond funds, the firm failed to timely warn its brokers or revise its advertising materials to reflect the disproportionately adverse effect the market was having on the performance of the securities that comprised the bond funds – which Morgan Keegan brokers continued to sell widely. At this time, the firm reassured, rather than warned, its sales force about the riskiness of the bond funds. As a result, some of the firm's brokers were unaware of the then-turbulent market's effects on the funds and failed to disclose the negative effects caused by market forces. FINRA acknowledges the cooperation in this matter of the Securities and Exchange Commission and state securities regulators.

Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry; disgorgement of gains associated with the violations; and payment of restitution. The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made and does not represent a decision as to any of the allegations contained in the complaint. Because this complaint is unadjudicated, interested persons may wish to contact the respondent before drawing any conclusions regarding the allegations in the complaint.

The law firm of Colling Gilbert Wright & Carter is currently investigating, filing and litigating arbitration claims on behalf of RMK Bond Fund investors. If you have lost money in a RMK Bond fund, please contact our office for a free case evaluation. Thank you.

posted by William B. Young Jr. Esq. at 4:58 AM

Tuesday, April 6, 2010

FINRA Publishes Guidance for Morgan Keegan Bond Fund Arbitrations

Today, the Financial Industry Regulatory Authority (FINRA) published guidance for Morgan parties involved in arbitration claims regarding the RMK Morgan Keegan bond funds. The FINRA action comes on the heals of a Tennessee Chancery Court order vacating a arbitration award and stating as one reason that two of the arbitrators had served on other Morgan Keegan cases involving the same products in dispute (RMK Funds). As FINRA does not have enought arbitrators in the southeastern pools, it is impossible to avoid arbitrators being chosed for multiple panels involving the same products. As such, FINRA is allowing challenges in certain circumstances and instituted other measures in extraordinary circumstances. The full FINRA release appears below:

Guidance to Parties in Cases Involving Morgan Keegan and the RMK Bond Funds

During the past two years, a large number of cases have been filed against Morgan Keegan in the Southeast region of the country involving the same products—the RMK bond funds. Because the cases are sited in just a few hearing locations that normally do not have many cases, the arbitrator rosters in those areas were relatively small. To bolster the rosters in these locations, FINRA reached out to arbitrators across the country to serve in these cases in the Southeast locations, increasing these rosters tenfold. The process of increasing the rosters by addition of arbitrators from other parts of the country continues.

On February 25, 2010, a Tennessee Chancery court vacated a FINRA arbitration award against Morgan Keegan. In its order, the court adopted all of petitioner Morgan Keegan's reasons for vacating the award. One reason cited was that two of the arbitrators had served on other Morgan Keegan cases involving the same products in dispute. The arbitration claimants have noticed an appeal from the court's order to vacate the award. On March 2, 2010, a different judge in the same court denied a motion to vacate by Morgan Keegan in another arbitration in which an award was entered against the firm. That court has not yet issued a written order.

FINRA will Follow its Current Practices.

FINRA does not believe that serving on multiple cases involving the same firm automatically disqualifies an arbitrator from serving on additional cases or requires removal for bias. However, FINRA has in the past honored timely challenges based on special circumstances, such as where the arbitrator is serving on multiple cases involving the same firm and the same product. We will continue to accept timely challenges on that basis. A timely challenge is one made promptly after the appointment of the arbitrator, either from the original list or from an extended list, and before the commencement of the next hearing session.

The concentration of Morgan Keegan RMK bond fund cases has resulted in the listing of numerous arbitrators who were assigned to other Morgan Keegan cases involving RMK bond funds. If a party knew or should have known that an arbitrator was assigned to other Morgan Keegan RMK fund matters but did not make a timely challenge to the arbitrator, that challenge will not be accepted later in the case.

Additional Measures to Address Extraordinary Circumstances

FINRA understands that these Tennessee court decisions have created uncertainty concerning the finality of arbitration awards in Morgan Keegan cases in which arbitrators are serving or have served on other Morgan Keegan cases involving the same bond funds. Rule 12412 of the Code of Arbitration Procedure provides that the Director may exercise discretionary authority and make any decision that is consistent with the purposes of the Code to facilitate the appointment of arbitrators and the resolution of arbitrations. Therefore, FINRA advises parties in claims against Morgan Keegan involving the RMK bond funds as follows:

To ensure that parties have current information about the arbitrators on their cases, FINRA will send the parties a letter outlining the number of each arbitrator's closed or pending Morgan Keegan customer cases. Parties that receive this information may request from the arbitrators further disclosures about the cases, including information about the products involved.

Consistent with current practice, FINRA will honor the written agreement of all the parties in a case to remove one or more of the arbitrators from that case.
If the parties do not agree on removal, any party may request that arbitrators withdraw from a case pursuant to Rule 12409. The arbitrator who is the subject of the request decides the request for recusal.

If the information provided by FINRA is the first indication for a party that an arbitrator served on or was appointed to other Morgan Keegan cases involving the RMK bond funds, that party will have ten calendar days from the date of the letter providing this information in which to file a challenge.

FINRA will assume that Morgan Keegan, as a party in each of these matters, was aware of all other appointments of arbitrators to RMK bond fund cases. Therefore, these disclosures are primarily to inform the investors involved in these matters.
If a party with previous knowledge of the arbitrator's appointment or service on other Morgan Keegan RMK bond fund cases did not challenge the arbitrator and now seeks to challenge the arbitrator because of disclosure about additional RMK bond fund cases, FINRA will not grant such challenges.

After the ten-calendar day period, those investors will not be able to challenge the arbitrator on the basis of service on other cases involving the RMK bond funds; a later challenge will be considered untimely.

FINRA reminds the parties that they can agree to postpone their case until the appellate courts provide clarity to the Chancery court decisions. FINRA will waive all postponement fees in those cases.

FINRA reminds the parties that they may agree to mediate their case.

posted by William B. Young Jr. Esq. at 11:34 AM

Structured Notes Starting to Come Back After Lehman Brothers Debacle

In a recent Reuters article the author notes how structured notes are making a comeback and the major brokers are again pushing "principal protected" notes on the investing public. Until recently, investors had lost their appetite for the complex products after Lehman Brothers, the underlying credit on many of the issues, files for bankruptcy protection on September 15, 2008, wiping out billions of dollars in investment capital.

Craig McCann, director of Securities Litigation Consulting Group (SLCG), said the term "principal protected is pure marketing gloss." Apparently effective marketing gloss as the major firms sold billions of dollars worth of these structured products to their unsuspecting retail client base, often using the term "principal protected" to make the sale. Unfortunately many of these notes were ultimately unsecured debt of the underlying issuer. This fact was often buried in the middle of the prospectus and not properly disclosed to the purchasers. When the credit markets collapsed in late 2007 and throughout 2008, many of these notes lose significant value and in the case of the ones backed by Lehman Brother, all of their value. Often the investors were not aware they had purchased Lehman debt until they received notice from their brokers regarding the Lehman Bankruptcy. By then it was too late.

The firms involved in the sale of these products include UBS, Morgan Stanley Smith Barney, and Charles Schwab. Allegedly, UBS issued over a billion dollars of Lehman backed structured products.

If you have lost money in a structured note investment, please contact our offices for a free case evaluation. Thank you.

posted by William B. Young Jr. Esq. at 11:10 AM

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