Wednesday, June 22, 2011

SEC Press Release: Morgan Keegan fined in connection with CDOs

Morgan Keegan to Pay $200 Million to Settle Fraud Charges Related to Subprime Mortgage-Backed Securities 

The U.S. Securities and Exchange Commission (SEC) issued a press release today announcing that
Morgan Keegan & Company and Morgan Asset Management have agreed to pay $200 million to settle fraud charges related to subprime mortgage-backed securities. Two Morgan Keegan employees also agreed to pay penalties for their alleged misconduct, including one who is now barred from the securities industry.
Here is SEC’s Order.

The Financial Industry Regulatory Authority (FINRA) also issued a press release today on the same matter. The settlement is detailed in the FINRA AWC No. 2007011164502. Morgan Keegan allegedly misrepresented facts relating to the Intermediate Fund, did not provide an adequate basis concerning facts about the fund, did not provide a fair and balanced view of the fund, and did not disclose how the market conditions of 2007 might have impacted the fund’s performance and value.

According to Registered Rep., Regions Financial Corporation, the parent of Morgan Keegan, has retained Goldman, Sachs & Co. to explore ways in which Morgan Keegan can be sold and to manage the company’s capital in the wake of the settlement agreement.

A mortgage backed security (MBS) is a debt security whose cash flows come from the principal and interest payments of borrowers on the mortgage loans. The pooling of mortgages into a debt security is called securitization and is performed by a trust. Mortgages are originated by public and private agencies, then they are securitized into MBS by a trust, and then the MBS is issued to public investors by the trust.

There are different types of MBS. A pass-through MBS gives the investor a pro-rata share of the principal and interest payments on the mortgage loans. A collateralized mortgage obligation (CMO) divides the security into classes, or tranches, representing different levels of claims on the share of the principal. Each tranche will have its own share of principal, coupon rate and maturity. SLCG has written a paper describing the market and history of CMOs in the wake of the collapse of Brookstreet Securities and two Bear Stearns hedge funds.

Investors can use our dedicated website in which we offer explanations and pricing about a wide range of structured products.

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