Regions Morgan Keegan Funds
The Risk of the Bond Mutual Funds Significantly Understated
Levin, Papantonio, Thomas, Mitchell, Echsner, & Proctor, P.A. is representing individual and institutional investors who suffered losses in a variety of Regions Morgan Keegan funds. A few noteworthy dismal performers include the Regions Morgan Keegan Select Intermediate Bond Fund (RIBCX), the Regions Morgan Keegan Select High Income Fund (MKHIX), the RMK High Income Fund (RMH), the RMK Multi-Sector High Income Fund (RHY), the RMK Strategic Income Fund (RSF), and the RMK Advantage Income Fund (RMA). These funds are now managed by Hyperion Brookfield, and have been renamed as the Helios Select Intermediate Bond Fund (HSICX), the Helios Select High Income Fund (HIFCX), the Helios High Income Fund (HIH), the Helios Multi-Sector High Income Fund (HMH), the Helios Strategic Income Fund (HSM), and the Helios Advantage Income Fund (HAV).
If you held a Regions Morgan Keegan Bond Fund in your portfolio during 2007 and 2008 you would have noticed a tremendous drop in its value. All of these funds have lost over 92% of their value since early 2007. These funds were recklessly exposed to subprime mortgage loans and a variety of risky debt instruments. Other prudently managed bond funds have been able to weather the brunt of the subprime fallout and the continued economic downturn, and have lost considerably less value than the Regions Morgan Keegan Funds. In fact, many of these reasonable bond funds have already begun to bounce back from losses sustained in late 2008.
The mismanagement of the Regions Morgan Keegan funds was compounded by the improper risk disclosures associated with the respective funds. Many investors bought into the Regions Morgan Keegan bond funds believing the funds were conservative long-term investments. Instead, investors found their portfolios riddled with risky debt instruments whose value began to plummet in mid-2007.
Regions Morgan Keegan systematically misled investors about the risks in their family of bond funds. If you lost money investing in any of the Regions Morgan Keegan funds, you may be entitled to compensation, call Levin, Papantonio, Thomas, Mitchell, Echsner, & Proctor, P.A. for a free consultation.
Morgan Keegan Legal Recovery Team
Our law firms have joined forces for the purposes of establishing a team, which focuses on the resources, skills and experience of its members on representing investors who have sustained investment losses in the subprime crisis. The participants in the team are Haskell, Slaughter, LLC; Levin, Papantonio, Thomas, Mitchell, Echsner & Proctor, P.A.; Reasonover & Olinde, LLC; and Smiley, Bishop & Porter, LLP.
Collectively, our team members have more than a century of experience representing investors. Several team members include former securities regulators, and many of our members are recognized for their leadership among attorneys practicing in the field of securities arbitration and litigation. If you have concerns about securities losses, we invite you to contact us and experience the benefit of working with a team, whose members are nationally recognized for their leadership, experience, and exceptional results.
Peter J. Mougey - view profile
Levin, Papantonio, Thomas, Mitchell, Echsner & Proctor, P.A.
J. Michael Bishop - view profile
Smiley, Bishop & Porter, LLP
Kirk Reasonover - view profile
Reasonover & Olinde, LLC
Harry C. Stansbury - view profile
Reasonover & Olinde, LLC
Thomas L. Krebs - view profile
Haskell | Slaughter LLC
J. Michael Redike - view profile
Haskell | Slaughter LLC
Hyperion Changes Closed-End Fund Names and Symbols
December 18, 2008
Continuing the management transition for the Closed End Mutual Funds formerly managed by James Kelsoe, Hyperion Brookfield has announced several name and symbol changes. The RMK Advantage Income Fund (RMA) is now the Helios Advantage Income Fund (HAV). The RMK High Income Fund (RMH) is now the Helios High Income Fund (HIH). The RMK Multi-Sector High Income Fund (RHY) is now the Helios Multi-Sector High Income Fund (HMH). The RMK Strategic Income Fund (RSF) has also been changed to the Helios Strategic Income Fund (HSA). The name changes are designed to create a unified brand across all Hyperion Funds.
Research Shows Morgan Keegan Misrepresented Risk
October 27, 2008
A research paper by former SEC economist Dr. Craig McCann reveals that several RMK funds formerly managed by Morgan Asset Management claimed that many of the funds underlying securities were riskier than portrayed. Dr. McCann found that many of the funds’ recent losses were caused by low-quality, high risk, and obscure securities that the average investor would be unable to discern. McCann’s research found many of the underlying holdings in foreign markets. Dr. McCann’s funded the research effort internally.
RMK Multi-Sector Receives Non-Compliance Notice
October 7, 2008
The RMK Multi-Sector High Income Fund, once managed by Jim Kelsoe, received notice from the New York Stock Exchange that it was not in compliance with the exchange’s requirement that a security maintain an average price above $1 over a thirty day period. The fund managers have six months to cure the price ‘deficiency’ and the fund will remain on the exchange throughout this period.
Hyperion Brookfield Announces New Pricing Policies
August 1, 2008
Hyperion Brookfield, the new manager of several Regions Morgan Keegan Bond mutual funds, has announced new pricing policies. The company announced that fund holders will notice a drop in net asset values on July 31st reflecting the change in procedure. Hyperion Brookfield notes that additional pricing changes may be possible. The effected funds are the RMK Advantage Income Fund, the RMK High Income Fund, the RMK Multi-Sector High Income Fund, the RMK Strategic Income Fund, the Regions Morgan Keegan Select High Income fund, the Regions Morgan Keegan Select Short Term Bond Fund, and the Regions Morgan Keegan Select Intermediate Bond Fund.
Hyperion Brookfield Asset Management Assumes Control of Morgan Keegan Funds
July 29, 2008
After being hit hard by troubles in the mortgage and credit markets, several Regions Morgan Keegan mutual funds have changed their management. The RMK Advantage Income Fund, the RMK High Income Fund, the RMK Multi-Sector High Income Fund, the RMK Strategic Income Fund, the Regions Morgan Keegan Select High Income Fund, and the Regions Morgan Keegan Select Intermediate Bond Fund, previously managed by Morgan Asset Management will be managed by Hyperion Brookfield effective July 29.
Regions Cuts Dividend
July 22, 2008
Regions Financial Corporation announced its plans to cut its dividend payment from 38 cents per share to 10 cents per share, a 74 percent reduction. The company says the steps were taken to save money and strengthen its capital ratios ‘after careful consideration of the effects of the current real estate credit cycle.’ Regions reported a net income of $206.4 million, a drop of nearly $250 million from the same quarter last year.
Regions Bank Case Moves to Federal Court
July 11, 2008
In a move intended to delay justice, Defendant Regions Bank removed a securities fraud case filed by Levin Papantonio to a Louisiana Federal Court.
Are Bond Funds Safe Anymore?
April 8, 2008
The Wall Street Journal's Shefali Anand has looked into bond funds and their performance over the last year or so. Bond funds used to be a safe investment, something that individual investors could buy and hold for years, expecting moderate returns and minimal volatility. Interestingly, the author notes that the Lehman Brothers Bond Index is up 2.3% since the start of the year. Reading through the overview of bond fund performances for the past year, we are not surprised by the all too common 5% losses from several funds. However, there are some funds that stand out, and the WSJ has a nice table that highlights the true subprime debacle champions. In first place is the Regions Morgan Keegan Select Intermediate Bond Fund, down 44% since January 1st and down 72% since last year! Other funds that were 'overexposed' to subprime losses have posted drops of 8 - 10%.
Clearly the Regions Morgan Keegan funds invested in risky subprime mortgages beyond the extent of any firm. Morgan Keegan investors lost money not only from the subprime meltdown, but also from the sloppy recklessness of its fund managers.
SEC Looking into RMK Funds; Morgan Keegan announces new CEO
February 27, 2008
The Securities and Exchange Commission has asked for information from Regions Morgan Keegan concerning its open and closed end mutual funds that lost dramatic value in the past few months. Some of the family's high-income and bond funds have lost over 50% since the subprime debacle was uncovered, far more than the industry average. Apparently, the regulatory agency is curious about the extreme exposure to high-risk subprime mortgages within these funds.
On the same day Morgan Keegan announced the timely retirement of its long standing CEO, Doug Edwards. After six years as CEO and nearly 30 years with the company, Mr. Edwards was pushed out by the subprime scandal. He will be replaced in April by John Carson.
Once the SEC gets involved and chief officers start stepping down, we can be sure that there have been serious breaches of conduct within the company. Specifically, we can be sure that several Regions Morgan Keegan funds were woefully managed. Don't pity Mr. Edwards, pity the individual investors who have lost over 50% in less than a year.
BIG BROKERAGE FIRMS LOSE BIG BECAUSE OF LOSSES IN INVESTMENTS BACKED BY SUBPRIME DEBT
February 3, 2008
Merrill Lynch's new chief recently released stunning 2007 statistics that include a fourth quarter 2007 loss of $9.91 billion and $15 billion in subprime writedowns. Citigroup, and many of the other major brokerage houses, have announced similar writedowns.
The Associated Press comments that "Merrill Lynch joins rival Wall Street investment houses Morgan Stanley and Bear Stearns Cos. in posting losses in the last three months of fiscal 2007. Citigroup Inc., the nation's largest bank, reported on Tuesday a quarterly loss of almost $10 billion, the largest in its 196-year history."
These firms are plotting layoffs or seeking bailouts from foreign investors in attempts to stop the bleeding. Each firm cites the subprime fiasco as the source of their troubles.
Regions Morgan Keegan Funds Suffer by Comparison
January 30, 2008
Regions Morgan Keegan's Select High Income Fund was recently awarded the honor of being one of the worst disasters of 2007. An analysis of several bond funds showed that the Regions fund suffered disproportionately to other funds due to its reckless exposure to subprime debt.
Read the story by the San Francisco Chronicle:
LEHMAN BROTHERS SUED
January 18, 2008
An arbitration claim for $1.14 billion has been filed in New Jersey against Lehman Brothers alleging that LB placed investors' savings into "investments that have become hard to sell." The now illiquid securities held are auction-rate securities, yet another form of security that has been damaged by the subprime mortgage crash and related credit crunch.
Lehman Brothers "disputed the [claimant's] accusation. 'These clients had a professional investment consultant with whom we dealt... we believe we have meritorious defenses to this claim.'" Presumably, the claimants were seeking illiquid investments exposed to the subprime mortgage market.
As the true extent of the subprime debt crisis plays out, it is safe to expect many more situations where individual investors are suffering.
SUBPRIME DEBACLE SPURNS FED AND CONGRESSIONAL ACTION
January 11, 2008
Before Congress this week, the Fed Chairman, Mr. Bernake, spoke of the dwindling US economy and the downturn's roots in the subprime debt crisis. The chairman provided support for a stimulus package, indicating that further Fed action may not be enough to halt the economic downturn.
The New York Times quotes Bernake saying "in the financial markets, the subprime shock 'has contributed to a considerable increase in investor uncertainty,' he reported, adding that the Fed is seeing 'considerable evidence that the banks have become more restrictive in their lending to firms and households." Many investors unknowingly purchased risky securities in the past few years and have good reason to become uncertain. As the subprime crisis trickles through the economy, credit will tighten and subprime investments will become more illiquid, and individual investors will continue to see their portfolios drop.
FLORIDA INVESTMENT PLANS LOSE FUNDS ON SUBPRIME BACKED LOANS
January 4, 2008
Purchasing behavior in the State of Florida pension funds tells a tale of an ugly aspect of the subprime crisis. In the February 2008 Bloomberg Markets David Evans uncovered some sinister behavior in a state pension fund. "On Sept. 30, 2005, 25 percent of the pool was invested in U.S. Treasuries and debt issued by U.S. agencies, the safest and most liquid debt sold... Florida was more aggressive than most states. In October, the Florida pool had the highest return of any public fund in the U.S., earning 5.63 percent." In 2007, something changed and Florida's fund managers, who had already been doing quite well, ran up their funds' subprime exposure.
Coleman Stipanovich was a supervisor for an investment fund for Florida's school districts before resigning in December 2007. Late last year, school districts in Florida began pulling money out of his fund after seeing the values fall and fearing illiquidity. In turns out that in July and August 2007 Stipanovich used taxpayer money to buy $842 million in risky debt. Within four months the securities had defaulted and were worthless.
Mr. Evans uncovered a blatant practice of gathering subprime riddled debt instruments. "As the subprime crisis unfolded around the world, Stipanovich and [pool manager] Lombardi increased their holdings of high-risk debt. They steadily reduced holdings of government securities in favor of higher-yielding-and riskier-commercial paper. In February 2007, London-based HSBC Holdings Plc, Europe's largest bank by market value, reported it had losses of $1.8 billion more than expected on its U.S. subprime lending. In the same month, Lombardi bought the $400 million in Countrywide CDs."
The managers of Florida's pension funds engaged in a self-dealing scheme where they knowingly bought high risk subprime debt in order to line their pockets at taxpayer expense.
MORGAN KEEGAN MUTUAL FUNDS SUFFER HUGE LOSSES BECAUSE OF EXPOSURE TO SUBPRIME LOANS
December 28, 2007
The end of the year data is in and, not surprisingly, it's ugly. While some equity mutual funds made mediocre gains, the stock funds with mortgage or financial company holdings suffered dramatic losses.
Some funds fared far worse than the typical moderate loss, most notably the Regions Morgan Keegan family of funds. Bloomberg notes that "the worst-performing bond fund was the $190 million Regions Morgan Keegan Select High income, which plunged 59 percent because of losses tied to subprime mortgages."
This data tells us that Morgan Keegan Funds were foolishly exposed to subprime mortgages, and that Morgan Keegan fund managers did not take the proper steps to mitigate the decline. While other bond funds were able to weather the subprime decline with moderate losses, the Regions Morgan Keegan funds have lost significant value. Clearly, the Morgan Keegan funds suffered from a dazzling display of poor management.
MORGAN KEEGAN SUED BY CHARITY FOR TERMINALLY ILL CHILDREN FOR IMPROPER INVESTMENTS
December 28, 2007
Morgan Keegan & Co. recently settled a lawsuit with the Indiana Children's Wish Fund, a charity that helps terminally ill children fulfill their last wishes. Apparently, the wish fund lost nearly $50,000 investing with in Morgan Keegan funds, in particular the Regions Morgan Keegan Select Intermediate Bond Fund.
Andy Meek, writing for The Daily News says "[the Indiana Children's Wish Fund] was one of the first investors in the group of bloodied RMK funds to file a claim or lawsuit recently saying the funds' volatility had not been fully disclosed." Most of the Morgan Keegan funds have suffered severely from the subprime mortgage debacle. Additional lawsuits have already been filed against the RMK Select Intermediate Bond Fund and the RMK Multisector Bond Fund.
Individual investors purchasing Morgan Keegan funds were not warned about the risks the funds undertook with their heavy weights in mortgage backed securities. The RMK fund managers have overexposed their funds to subprime debt, investors are suffering losses, and the managers should have been more responsible.
Read the full story here and here
REGIONS MORGAN KEEGAN SUED IN CLASS ACTION FOR LOSSES IN MUTUAL FUNDS BACKED BY SUBPRIME LOANS
December 21, 2007
Many of the Regions Morgan Keegan funds have been named in a class action lawsuit out of Tennessee filed by Coughlin, Stoia, Geller, Rudman, & Robbins LLP. The complaint, filed in December, names, among others, the Morgan Keegan Select Fund Inc. and the RMK Multi-Sector High Income Fund, Inc.
The associated press release mentions some specific transgressions. "The complaint alleges that parts of the Funds' portfolios have been invested in collateralized debt obligations ("CDOs"), including CDOs backed by subprime mortgages to higher-risk borrowers... As late of the summer of 2007, as the housing and credit crisis depended, MK Select and the RHY Fund continued to play down and conceal the Funds' growing exposure to the problems in the subprime market." Late this year, the Regions Morgan Keegan fund managers finally admitted to the risks they accepted when designing their funds.
We can assume that the Regions Morgan Keegan funds are not alone in their exposure to the subprime crisis. Various investments, including mutual funds, CDOs, and SIVs bought up subprime assets lured by the promise of high returns ignoring the inherent risks. Fund managers nationwide, including Morgan Keegan managers, disregarded the inherent volatility in the subprime mortgage market and that carelessness is sure to lead to further charges.
Read the story here
STATE RUN FUNDS KEEP LOSING ON STRUCTURED INVESTMENT VEHICLES WITH UNDISCLOSED SUBPRIME EXPOSURE
December 3, 2007
The subprime mortgage crisis is continuing to take its toll on the average working American. Bloomberg Markets recently uncovered extensive public, taxpayer funds in Structured Investment Vehicles (SIVs) and Collateralized Debt Obligations (CDOs) in the United States. Both forms of securities are riddled with subprime mortgages. Fund managers, lured by high returns and undisclosed debt exposure, have consistently increased their SIV and CDO, and therefore their subprime holdings, over the last few years.
Some consider SIVs to be the most dangerous securities. "SIVs finance themselves by selling asset-backed commercial paper, or short-term loans backed by collateral such as mortgages. When the subprime debt market blew up in August, investors stopped buying SIV commercial paper. As a result, in September and October, SIVs didn't have the cash to pay debt holders of more than $8 billion of their paper." The security companies are not required to file with US regulatory agencies. They excel at hiding the risks associated with their investment vehicles.
Across the country the various governments that purchased subprime debt are facing serious losses from market declines and default rates. Bloomberg Markets' David Evans says, "Until municipal fund managers learn to steer clear of traps like CDOs and SIVs, taxpayers' money will be at risk-and it's not likely anyone will tell them." Clearly, taxpayers are the victims of the subprime debacle.
SUBPRIME CRISIS ACCELERATED BY FALLING RATINGS:
November 2, 2007
Sales of Collateralized Debt Obligations (CDOs) have skyrocketed in recent history. Richard Tomlinson and David Evans of Bloomberg say that "Sales of CDOs worldwide have soured since 2004, reaching $503 billion last year, a fivefold increase in three years." Initially, these debt obligations, with safe ratings from various rating agencies, offered yields approaching 9% annually. "Why buy a corporate bond yielding 5 percent when you can invest in a CDO with the same credit rating and the promise of a return twice as high?" Why Indeed?
Unfortunately the safe risk ratings where wholly inappropriate, and many of these securities were dangerously exposed to subprime debt. "Corporate bonds rated Baa, the lowest Moody's investment rating, had an average 2.2 percent default rate over five-year periods from 1983 to 2005... From 1993 to 2005, CDOs with the same Baa grade suffered five-year default rates of 24 percent" say Evans and Tomlinson. Were these ratings an error or was something else at stake?
Evans and Tomlinson answer our concerns by reviewing the rating companies themselves showing that "[i]n the past three years, S&P, Moody's and Fitch have made more money from evaluating structured finance-which includes CDOs and asset-backed securities-than from rating anything else, including corporate and municipal bonds, according to their financial reports. The companies charge as much as three times more to rate CDOs than to analyze bonds." Not to mention that the ratings companies are paid by debt issuers.
Unsurprisingly, the ratings companies have a wealth of disclaimers cautioning investors not to rely on ratings. Unfortunately, many individual and institutional investors did rely on the ratings. On the other hand, fund managers who filled their funds with subprime debt should have known better.