Alleged Mutual Fund Bond Fraud by Morgan Keegan Leading to Huge Losses

The dust is settling from the sub-prime mortgage blow up and investors who lost millions with Morgan Keegan and won’t accept general market volatility as a reason are lining to up recoup their losses. Those who aren’t willing to wait for a class-action lawsuit are choosing the arbitration process for a faster and more efficient way to recover their damages.

Last week, an arbitration claim against Morgan Keegan was filed with FINRA by an investor who lost a shocking sum of $4 million. The plaintiff alleges damages relating to the sale of unsuitable bond funds which include the RMK High Income Fund (RMH), the RMK Multi-Sector High Income Fund (RHY), the RMK Advantage Income Fund (RMA), the RMK Strategic Income Fund (RSF) and the Regions MK Select High Income Fund (MKHIX).

These funds are also accused of misrepresenting and omitting information in its registration statements and prospectuses with regards to the funds’ investments in collateralized debt obligations and the consequent exposure to the sub-prime mortgage market. The plaintiff alleges further damages came from false and misleading statements issued by Morgan Keegan with regard to the funds’ safety and ability to generate income.

This $4 million dollar lawsuit is not alone; other lawsuits are seeking to recover amounts ranging from $285,000 to $1.8 million. Angry investors are filing claims against Morgan Keegan for not managing the funds better and mitigating losses as the sub-prime market began to crumble last year. These investors are also accusing Morgan Keegan of fraud because they say there were led to believe the funds were a safe, stable investment and Morgan Keegan did not reveal the true risk from exposure to sub-prime mortgage. Worse, it is alleged that Morgan Keegan continued to take investors’ money and put them in these risky funds without revealing the risks even as the market deteriorated

Smaller investors like charities are not immune to the RMK funds’ failure either. Last October, a charity based in Indiana filed a claim against Morgan Keegan for a $50,000 loss in one of the RMK funds. Morgan Keegan is settling the claim with an unidentified sum.

Six of the RMK funds have lost more than half their value in 2007 due to their exposure to the volatile sub-prime mortgage market.