The Securities and Exchange Commission has reached a settlement with the eight former independent directors of the Regions Morgan Keegan Funds who were charged by the SEC with overstating the value of their securities as the housing market was collapsing in 2007.
The SEC filed the charges in early December and the directors, in turn, filed an administrative proceeding against the SEC the same day, as they had vowed to “vigorously” fight the charges.
However, on Wednesday an administrative proceeding was issued asking for a stay for the hearing set for April 2 as a settlement in principle has been reached between the SEC’s enforcement division and the respondents. “The parties have agreed in principle to a settlement on all major terms,” stated a joint motion released by the SEC.
The eight directors oversaw five funds, which were invested in some securities backed by subprime mortgages. The mutual funds involved were the RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Strategic Income Fund, RMK Advantage Income Fund and Morgan Keegan Select Fund.
The SEC’s action in December followed a related $200 million settlement with Morgan Keegan, a subsidiary of Raymond James Financial, last year and sanctions against two employees in 2010.
As the SEC explained in its December order, “fund directors are responsible for determining the fair value of fund securities for which market quotations are not readily available,” but the eight directors violated this securities law by delegating “their fair valuation responsibility to a valuation committee without providing meaningful substantive guidance on how fair valuation determinations should be made.”