The Financial Industry Regulatory Authority, Securities and Exchange Commission and state regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee were involved in the enforcement action and settlement.
Morgan Keegan said it also would pay up to an additional $10 million to be shared among any states that join in the settlement.
In a letter to clients, Morgan Keegan CEO John C. Carson Jr. said the settlement was a difficult decision aimed at ending years of litigation related to the matter. He said that mutual fund business involved was sold more than three years ago.
Carson also noted in the letter that Morgan Keegan’s parent company, Regions Financial, has retained Goldman Sachs to explore strategic alternatives for Morgan Keegan. In a press statement, Regions president and CEO Grayson Hall said that while Morgan Keegan has value as a regional brokerage and investment banking leader, the resolution of the litigation gives Regions more options for what it can do with the unit.
Regions’ stock price was as high as $6.45 on Wednesday and as low as $6.05 Thursday morning, when the Dow as a whole was down more than 200 points.
Morgan Keegan is paying the restitution to investors in seven affiliated bond funds, including the Regions Morgan Keegan Select Intermediate Bond Fund, according to FINRA.
FINRA found that from the beginning of January 2006 to the end of Sept. 2007, Morgan Keegan marketed and sold the Intermediate Fund improperly. FINRA said the company marketed and sold the fund to investors using sales materials that contained exaggerated claims, failed to provide a sound and objective basis for evaluating the facts regarding the fund and did not adequately disclose 2007 market conditions that caused substantial losses to it.
The fund invested predominantly in structured products, including mezzanine and subordinated tranches of structured securities, subprime products and mortgage-backed securities.