U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation release No. 21143 / July 21, 2009
Securities and Exchange Commission v. Morgan Keegan & Company, Inc., Civil Action No. 09-CV-1965 (N.D. Ga.)
SEC Charges Morgan Keegan & Company, Inc. with Fraudulent Marketing and Sales of Auction Rate Securities
The Securities and Exchange Commission (“Commission”) announced today that it has filed a complaint in the U.S. District Court for the Northern District of Georgia against Morgan Keegan & Company, Inc. (“Morgan Keegan”), a Tennessee-based broker-dealer, for misleading investors regarding the liquidity risks associated with auction rate securities (“ARS”) that the firm underwrote, marketed, or sold.
The Commission’s complaint alleges that Morgan Keegan misrepresented to customers that ARS were safe, highly liquid investments that were comparable to money-market funds. According to the complaint, in 2007 and early 2008, Morgan Keegan was aware that the ARS market was deteriorating. Specifically, the complaint alleges that investor concerns about the creditworthiness of ARS insurers, auction failures in certain segments of the ARS market, increased clearing rates for auctions managed by Morgan Keegan and other broker-dealers, and higher than normal ARS inventories at Morgan Keegan collectively indicated that the risk of auction failures had materially increased. The SEC alleges that Morgan Keegan sold approximately $925 million of ARS to its customers between November 1, 2007, and March 20, 2008, but failed to inform its customers about liquidity risks for ARS, even after the firm decided to stop supporting the ARS market in February 2008.
The Commission’s complaint alleges that Morgan Keegan violated the antifraud provisions of the federal securities laws, Sections 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(c) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also seeks (i) permanent injunctions against Morgan Keegan for future violations; (ii) disgorgement of ill-gotten gains with prejudgment interest; (iii) imposition of civil penalties; and (iv) an order requiring Morgan Keegan to repurchase ARS sold to its customers.
The Commission acknowledges the assistance and cooperation of the Alabama Securities Commission and the New York Attorney General’s Office.