Memphis-based Morgan Keegan is accused of selling a variety of risky subprime mortgage-backed RMK funds to clients without disclosing the risk to them and most of the value of those funds has since been wiped out. Investor lawsuits are piling up fast.
With an average of two lawsuits being filed against them every month for the last five months (except January), Morgan Keegan directors are trying to get out. Pending shareholder approval, directors of seven RMK funds signed an agreement that would remove themselves and the funds’ director from managing the funds and transfer them to a New York-based asset management company. The effect that management change would have on the now nine pending federal lawsuits is unclear.
Lawrence Jones, an analyst at Morningstar Inc., commented that “some of the litigation that has been brought up regarding these funds may have just been a real thorn in RMK's side” and that’s why Morgan Keegan handed off local funds to Hyperion Brookfield Asset Management. Jones thinks Morgan Keegan “may have just wanted to put this part of their business to rest and just mop up the litigation and then move on.”
Those who invested in the RMK funds come from a variety of backgrounds. Some are sophisticated and successful business professionals and entrepreneurs; some are hard-working middle-class families or retired widows or widowers dependant on a fixed income. They all lost an exorbitant amount in what they thought were stable investments and it’s a huge problem for Morgan Keegan’s asset management division.
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