The SEC, state regulators and FINRA on June 22, 2011 announced that Morgan Keegan & Company (“Morgan Keegan”) and Morgan Asset Management (“Morgan Asset”) agreed to pay $200 million to settle fraud charges related to subprime mortgage-backed securities valuations in their registered funds.1 Two Morgan Keegan employees — a controller and a portfolio manager — also agreed to pay penalties for their alleged misconduct. The two employees were accused of causing the false valuation of the securities in five funds that Morgan Asset managed from January to July 2007.
The SEC trumpeted the case as demonstrating its continuing efforts to prosecute companies and individuals associated with the subprime mortgage crisis. Robert Khuzami, Director of the SEC’s Division of Enforcement, stated that “the falsification of fund values misrepresented critical information exactly when investors needed it most — when the subprime mortgage meltdown was impacting the funds.” The case is also important to better understand the SEC’s views on appropriately “fair valuing” a fund’s portfolio securities. The Morgan Keegan case follows several SEC fund valuation cases.
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