Consumer Fraud

Regions, Morgan Keegan relationship stronger despite legal woes

A recent report in the Memphis Business Journal says the relationship between Regions Financial Corp., based in Birmingham, Ala., and its investment arm, Morgan Keegan & Co., located in Memphis, Tenn., has sweetened. At a recent “Investor Day” event held in New York City, the Business Journal reports company executives talked about strengthening the relationship between the two organizations, and Regions heads included Morgan Keegan as part of the company’s “strategic future.” Last December, and as recently as March of this year, there were rumors that Regions was planning to unload the investment brokerage in order to raise capital to pay back its Troubled Asset Relief Program (TARP) loans, and to distance itself from lawsuits aimed at alleged fraudulent investments made by Morgan Keegan.

Regions is struggling under a second quarter reported loss of $335 million, and some watching the industry felt the company would be unable to absorb more losses and legal fees related to the Morgan Keegan lawsuits. As a result of the litigation, which involves proprietary Regions Morgan Keegan investment funds, Morgan Keegan racked up $161 million in legal fees last year, a jump of 44 percent over the previous year. The lawsuits allege the Regions Morgan Keegan funds were presented to investors as low-risk, but were actually tied to the volatile mortgage lending market. When the bottom fell out of that sector, many investors lost substantial amounts, almost overnight.

However, Regions and Morgan Keegan have recently partnered on a new investment banking division that more closely ties the financial institution with the investment brokerage. It is believed that this new relationship is already proving profitable by allowing Regions to leverage existing relationships with investment banking clients, the Business Journal reports.

An administrative hearing to discuss allegations of fraud against Morgan Keegan & Co. has been set for Oct. 5 in Montgomery, Ala. The administrative action is the culmination of a multi-state investigation involving six mutual funds sold by Morgan Keegan broker dealers to approximately 13,000 customers. The six mutual funds lost approximately $2 billion in value from March 31, 2007 to March 31, 2008. The Joint Administrative hearing includes Mississippi, Alabama, South Carolina and Kentucky, and will be held at the offices of the Alabama Securities Commission in Montgomery, Ala., on Tuesday, Oct. 5, 2010 beginning at 9 a.m. CST.