From January 2006 to the end of September 2007, Morgan Keegan marketed and sold the Intermediate Fund to investors using sales materials that contained exaggerated claims, failed to provide a sound basis for evaluating the facts regarding the fund, were not fair and balanced and did not adequately disclose the impact of market conditions in 2007 that caused substantial losses in the fund, FINRA said.
Although Morgan Keegan marketed the fund as a relatively safe, investment-grade income fund, it invested predominately in structured products, including mezzanine and subordinated tranches of asset- and mortgage-backed structured securities, including sub-prime products, the regulators said.
By early 2007, Morgan Keegan was aware of the fund’s exposure to these sub-prime products but failed to disclose those risks in sales materials and internal guidance, the regulators said. In fact, more than 54% of the portfolio was invested in asset-backed securities, and 13.5% was invested in subprime products, they said.
“Firms must ensure that their marketing materials fully and accurately describe the products they sell, including the attendant risks and any relevant information about market conditions that may impact those products,” said Brad Bennett, FINRA executive vice president and chief of enforcement. “By not fully disclosing the risks, Morgan Keegan portrayed the Intermediate Fund as a safer investment than it was.”
