A subsidiary of bailed-out bank Regions Financial was charged on Wednesday by the Securities and Exchange Commission with fraud related to subprime mortgages.
The SEC announced this morning administrative proceedings against Memphis, Tenn.-based firms Morgan Keegan & Company and Morgan Asset Management "and two employees accused of fraudulently overstating the value of securities backed by subprime mortgages."
Morgan Asset is a wholly-owned subsidiary of MK Holding, Inc., which in turn is a wholly-owned subsidiary of Regions Financial, which received $3.5 billion in TARP funds.
It hasn't been the best week for Regions -- earlier this week, Reuters reported that CEO Dowd Ritter boosted his 2009 pay to $9.7 million from $6.8 million before resigning last week. Though the bank has not yet returned any of its TARP funds, Ritter's stock grants in 2009 were nearly 10 times what he received in 2008.
According to the SEC order:
The SEC's Division of Enforcement alleges that Morgan Keegan failed to employ reasonable procedures to internally price the portfolio securities in five funds managed by Morgan Asset, and consequently did not calculate accurate "net asset values" (NAVs) for the funds. Morgan Keegan recklessly published these inaccurate daily NAVs, and sold shares to investors based on the inflated prices.
"This scheme had two architects -- a portfolio manager responsible for lies to investors about the true value of the assets in his funds, and a head of fund accounting who turned a blind eye to the fund's bogus valuation process," said Robert Khuzami, Director of the SEC's Division of Enforcement.
William Hicks, Associate Director in the SEC's Atlanta Regional Office, said, "This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds."