More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
Morgan Keegan’s parent company, Regions Financial Corp., said Wednesday that, after resolving some disputes with regulators and agreeing to pay $210 million, it was exploring all options with respect to the future of the Memphis-based broker-dealer. The possible sale of Morgan Keegan would affect roughly 1,200 financial advisors working in about 300 offices in 20 states with some $82 billion in assets under management.
"Morgan Keegan has been a subsidiary of Regions since 2001 and is a leading brokerage and investment banking firm based in the Southeast and a very valuable franchise,” said Regions President and CEO Grayson Hall, in a press release. “However, the resolution of this legacy regulatory matter gives Regions greater flexibility with respect to the Morgan Keegan franchise and the ability to explore opportunities that are consistent with our strategic and capital planning initiatives."
Early Wednesday, the SEC, state regulators and the Financial Industry Regulatory Authority announced that Morgan Keegan and Morgan Asset Management agreed to pay $210 million to settle fraud charges related to subprime mortgage-backed securities. According to the SEC, two Morgan Keegan employees also agreed to pay penalties for their alleged misconduct, including one who is now barred from the securities industry.
“The falsification of fund values misrepresented critical information exactly when investors needed it most – when the subprime mortgage meltdown was impacting the funds,” said Robert Khuzami, director of the SEC’s division of enforcement, in a press release. “Such misconduct does grievous harm to investors.”
The Morgan Keegan settlement was related to the sale of certain mutual funds and closed-end funds (RMK Funds), a business that Morgan Asset Management divested in 2008.
According to FINRA, the company will be making restitution to clients who invested in seven affiliated bond funds, including the Regions Morgan Keegan Select Intermediate Bond Fund (Intermediate Fund). The funds were managed by Morgan Keegan's affiliate, Morgan Asset Management. Enforcement proceedings were brought not just by FINRA, but also by the SEC and five state regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee.
FINRA determined that the company, from January 2006 through September 2007, marketed and sold the Intermediate Fund to investors using sales materials that contained exaggerated claims, failed to provide a sound basis for evaluating the facts regarding the fund, were not fair and balanced, and did not adequately disclose the impact of market conditions that caused substantial losses to the value of the Intermediate Fund.
As part of the settlement, Morgan Keegan and Morgan Asset Management agreed to pay $210 million, of which $200 million will be placed into two Fair Funds for the benefit of investors in the RMK Funds in any state. The five states will share $10 million in penalties.
Regions also announced that with these regulatory matters settled, and as part of its ongoing capital planning process, it has retained Goldman, Sachs & Co. to explore “potential strategic alternatives” for Morgan Keegan as Regions evaluates how best to manage its capital to increase shareholder value. (Morgan Asset Management and Regions Morgan Keegan Trust are not included in this review.)
"Morgan Keegan is excited by the opportunity to further develop the brand that we have built over the last 40 years,” said John Carson, CEO of Morgan Keegan, in a statement. “Morgan Keegan's core businesses remain strong and, with this settlement behind us, we look forward to continuing to serve our individual, institutional and investment banking clients and to growing our business."