Two separate MBS-related regulatory settlements involving hundreds of millions of dollars restitution to investors were seen late last month and the Securities and Exchange Commission (SEC) indicated similar cases would remain a priority for it in the future.
JPMorgan Securities LLC said it would pay $153.6 million to settle SEC allegations that it misled investors in a complex mortgage securities transaction just as the housing market was starting to plummet.
Under the settlement, harmed investors will receive all of their money back and the Wall Street firm also has agreed to improve its mortgage securities reviews and approvals, according to the SEC.
The SEC alleged JPMorgan had structured and marketed a synthetic collateralized debt obligation without informing investors a hedge fund helped select the assets in a mortgage-related CDO portfolio and had a short position in more than half of those assets.
The SEC said in an answer to a question during a press conference about the settlement that similar cases would remain a priority for the commission.
In the settlement, JPMorgan neither admitted nor denied the allegations.
The SEC said it also has filed separate charges against an individual identified as having headed the team that implemented the process for purportedly selecting the investment portfolio.
Morgan Keegan & Co. Inc. will pay $200 million in restitution to subprime and mortgage-related bond fund investors to settle multiregulator enforcement proceedings related to improper marketing and insufficient disclosures.
The Financial Industry Regulatory Authority, SEC and state regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee were involved in the enforcement action and settlement.
Morgan Keegan said it also would pay up to an additional $10 million to be shared among any states that join in the settlement.
In a letter to clients, Morgan Keegan CEO John C. Carson Jr. said the settlement was a difficult decision aimed at ending years of litigation related to the matter. He said that mutual fund business involved was sold more than three years ago.
Carson also noted in the letter that Morgan Keegan’s parent company, Regions Financial, has retained Goldman Sachs to explore strategic alternatives for Morgan Keegan. In a press statement, Regions president and CEO Grayson Hall said that while Morgan Keegan has value as a regional brokerage and investment banking leader the resolution of the litigation gives Regions more options for what it can do with the unit.
Morgan Keegan is paying the restitution to investors in seven affiliated bond funds, including the Regions Morgan Keegan Select Intermediate Bond Fund, according to FINRA.
FINRA found that from the beginning of January 2006 to the end of September 2007, Morgan Keegan marketed and sold the Intermediate Fund improperly. FINRA said Morgan Keegan marketed and sold the fund to investors using sales materials that contained exaggerated claims, failed to provide a sound and objective basis for evaluating the facts regarding the fund and did not adequately disclose 2007 market conditions that caused substantial losses to it.
The fund invested predominantly in structured products, including mezzanine and subordinated tranches of structured securities, subprime products and mortgage-backed securities.