Switch to ADA Accessible Theme
Close Menu

Morgan Keegan and Two Employees Charged With Securities Fraud for Overstating Value of Mortgage-Backed Securities

The SEC has charged Morgan Keegan with failure to use proper procedures to the securities in five managed funds and for its failure to correctly calculate the “net asset values” (NAVs) for the funds. Morgan Keegan sold shares in the funds to the public, including Florida investors, based on the inaccurate prices.

The SEC alleges that the portfolio manager and a Morgan Keegan employee directed the firm’s Fund Accounting department to make “price adjustments” that increased the values of specific securities. The price adjustments ignored lower values for those same securities quoted by various dealers. The employee apparently screened and manipulated the pricing quotes obtained from at least one brokerage firm.

The SEC also alleges that Joseph Thompson Weller, a CPA who was in charge of the Fund Accounting Department, did little to correct the deficiencies in Morgan Keegan’s valuation procedures and did not make sure that fair-valued securities were being accurately priced.

According to the SEC’s order initiating proceedings, Morgan Keegan priced each portfolio’s securities and calculated its daily NAV through its Fund Accounting Department. The NAV of an investment company is its total assets minus its total liabilities. An investment company calculates the NAV of a single share by dividing its NAV by the number of shares that are outstanding.

The employee directed his assistant to send approximately 262 price adjustments to Fund Accounting. The adjustments, however, were arbitrary and did not reflect fair value. The employee’s adjustments were entered into a spreadsheet used to calculate the NAVs of the funds and he routinely instructed Fund Accounting to ignore month-end quotes from broker-dealers that were supposed to be used to validate the prices the firm had assigned to the funds’ securities.

The SEC’s case and investigation against Morgan Keegan and the employees are ongoing.

Facebook Twitter LinkedIn