MONTGOMERY, AL (WSFA) - The firm Morgan Keegan has agreed to a $200 million settlement with federal and state regulators. It came after a series of parallel investigations into the firm's business practices. Regulators said those practices could have cost investors $1.5 billion.
In filings, regulators said Morgan Keegan, owned by Birmingham-based Regions Financial, told customers they were investing in safe mutual funds or bond funds, and did not tell those investors the amount of the risk that was involved. Those funds were proprietary to Morgan Keegan.
The head of the Alabama Securities Commission said the case underscores how important it is for people to understand what they've investing in, before they buy into a product.
"Investors we interviewed, including who sold the product, did not know that these funds were largely made up of structured products of the subprime mortgage junk," said Joe Borg, Director of the Alabama Securities Commission. "You have to understand, investigate before you invest."
Under the terms of the settlement, the 37,000 investors will be eligible to file for claims from the $200 million settlement fund. The company will also have to reorganize, and provide special training to all firm employees. It's also barred from creating, offering or selling any proprietary funds for a period of two years.
"I would say that other companies could take a textbook lesson from this, to see what shouldn't go on, and how they should properly reform their practices as the regulators see it," Borg said.
Regions Financial also announced that it is exploring options for Morgan Keegan, including a possible sale.