This is a pending class action lawsuit against Regions Morgan Keegan on behalf of individual and institutional investors.
Regions Morgan Keegan operates a variety of mutual funds including the Select Intermediate Bond Fund ("MKIBX") and the Select High Income Fund ("RHIIX"). As of November 23, 2007, Morningstar reported RHIIX's net asset value was down almost 55% year-to-date; from December 31, 2006 until November 30, 2007, the RHIIX's net asset value per share declined from $10.14 to $3.91 for a loss of $6.23 per share, or 61.4%. For the same period, Morningstar reported MKIBX's net asset value was down over 43%; MKIBX's net asset value per share declined from $9.93 to $5.07 for a loss of $4.86 per share or 48.9%.
The Funds revealed, for the first time, on October 3, 2007 that, as of June 30, 2006, and June 30, 2007, the magnitude of the Funds' securities that were fair valued and were, therefore, illiquid securities. For MKIBX, it was disclosed that 55.8% of its investment securities were fair valued at June 30, 2006, and 50.4% at June 30, 2007. For RHIIX, it was disclosed that 49.5% of its investment securities were fair valued at June 30, 2006, and 59.7% at June 30, 2007.
Each fund issued three classes of shares. Those classes are:
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)
Regions Morgan Keegan Select High Income Fund I (RHIIX)
The class action lawsuit on behalf of investors in these fund alleges Regions Morgan Keegan misrepresented or failed to disclose material facts relating to (i) the nature of the risk being assumed by an investment in the Funds, (ii) the illiquidity of certain securities in which the Funds invested, (iii) the extent to which the Funds' portfolios contained securities that were illiquid or exhibited the characteristics of illiquid securities so that they were highly vulnerable to suddenly becoming unsalable at the prices at which they were being carried on the Funds' records, (iv) the extent to which the Funds' portfolios were subject to fair value procedures, (v) the extent to which the values of such securities, and, consequently, the net asset values of the Funds, were based on estimates of value and the uncertainty inherent in such estimated values, and (vi) the concentration of investments in a single industry in excess of investment restrictions to which the Funds were subject.
The class action lawsuit further alleges that these extraordinary losses in share value were caused by the Funds' heavy investment in relatively new types of manufactured or structured fixed income securities that had not been tested through market cycles and by the failure of the Funds to comply with required and disclosed procedures relating to the manner in which the Funds' assets were invested, the level of liquidity of assets which would be maintained, the lack of liquidity in the Funds' portfolios, the valuation procedures used to price their assets, the uncertainty inherent in the estimated value of their assets, violations of the Funds' investment restrictions on illiquid securities and investments in a single industry, and/or the failure to disclose such breaches and failures and conditions in the Funds' portfolios. These failures rendered the Funds extraordinarily vulnerable to changes in market conditions, far more vulnerable than other intermediate bond and high income funds affected by the same events and conditions in the subprime and other markets in 2007.
Name (Stock Symbol)
Morgan Keegan & Company
Morgan Keegan & Company, a subsidiary of Regions Financial Corporation, is a regional investment firm offering full-service investment banking, securities brokerage, wealth and asset management.
Regions Financial Corp (RF)
Regions Financial Corporation is provides consumer and commercial banking, trust, securities brokerage, mortgage and insurance products and services.
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