“For nothing is hidden that will not become evident, nor anything secret that will not be known and come to light.” Thus hinteth today’s Wall Street Journal article by Suzanne Barlyn entitled “COMPLIANCE WATCH: SEC Warning May Help Unhappy Investors.”
The United States Securities and Exchange Commission (the “SEC”) Staff’s warning that it intends to recommend an enforcement action against Morgan Keegan for possible violations of the federal securities laws may incline more arbitrators to require Morgan Keegan to disclose documents it supplied to the SEC in its investigation, but wants to keep hidden from investors and arbitrators, according to the article. Here is the background.
Morgan Keegan is the subject of countless arbitration claims filed by aggrieved investors all over the country arising out of bond mutual funds that were run by its manager, James Kelsoe, including the Regions Morgan Keegan Select High Income Fund, Regions Morgan Keegan Select Intermediate Bond RMK High Income Fund, RMK Strategic Income Fund, RMK Multi-Sector High Income Fund, and RMK Advantage Income Fund.
The funds, which boasted outsized gains during the housing bubble, collapsed as a result of concentrated holdings in toxic collateralized debt obligations and other complex structured financial products tied to mortgages. The returns for these bond funds were among the worst of any bond-focused mutual funds in the U.S. for 2008 and 2009. The arbitrations allege that Morgan Keegan misrepresented and omitted to disclose material facts and risks about the funds to investors. Apparently, the SEC Staff thinks so, too.
On July 9, 2009, Morgan Keegan and related entities and individuals each received a “Wells” notice from the Staff of the Atlanta Regional Office of the United States Securities and Exchange Commission (the “SEC”) stating that the SEC Staff intends to recommend that the SEC bring enforcement actions for violations of the federal securities laws. In connection with the SEC investigation, Morgan Keegan and its affiliates have produced documents to the SEC. Claimants, believing such documents contain relevant information, have moved to compel production of those documents in the arbitrations.
Morgan Keegan has vigorously contested claimants’ efforts to bring these documents to light. The fight that Morgan Keegan has put up has been “unbelievable,” according to one commenter in the article. So far, its attorneys have succeeded (with a very few exceptions) in preventing disclosure of those documents.
That may be changing, however, according to the article. “The fact that the enforcement staff thinks there’s something there is helpful and significant in determining the relevance of documents in arbitration proceeds,” said one securities litigation attorney and former SEC enforcement attorney. This action by the SEC Staff “has to influence arbitrations when the issue of discovery of regulatory documents comes up.”
J. Boyd Page, senior partner of Page Perry, in Atlanta, comments “It’s time for arbitrators to start granting investors full access to clearly relevant documents associated with what the SEC obviously believes to be a huge fraud. Failure to grant investors access to these documents not only frustrates investors’ ability to prove their case, it is a refusal to hear relevant evidence and creates the perception that arbitrators are trying to protect Morgan Keegan at investors’ expense. In light of the SEC’s action, the refusal of arbitrators to force Morgan Keegan to turn over the evidence makes a mockery of the arbitration system.”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors regarding their Morgan Keegan bond fund investments. For further information, please contact us.