A newly released report concludes that  Regions Morgan Keegan misled investors about the risks associated with its bond funds, costing them millions of dollars.  The Memphis, Tennessee-based firm has already been named ins several class action lawsuits that alleg investors were not informed of the true risks associated with some of its bond funds to until well after they sustained significant losses in 2007.

In 2007, investors who purchased shares of the Regions Morgan Keegan Select Intermediate Bond Fund and Regions Morgan Keegan Select High Income Fund from December 6, 2004 through October 3, 2007 lost a total of $2 billion.  It was then that they learned that mortgage-backed securities and collateralized debt obligation (CDO) made up over 50 percent  of each fund’s portfolio. 

Because of this, investors were exposed to substantially more risk than investors in other high and intermediate income funds, which didn’t suffer the same drastic losses from market conditions. Investors who have filed lawsuits against Regions Morgan Keegen claim that they were not aware of the bond fund’s ties to risky subprime mortgage-related assets when they made their investments.

A new report that backs up the allegations made in various lawsuits has now been issued by the Securities Litigation and Consulting Group, Inc, a financial economics consulting firm that provides expert witnesses to parties involved in securities litigation, According to the report, Regions Morgan Keegan misrepresented hundreds of millions of dollars of leveraged asset-backed securities as corporate bonds and preferred stocks.  This made the funds seem more diversified and less risky than they actually were, the report said.

The report concludes that had Regions Morgan Keegan performed a rudimentary analysis on its holdings – as it had claimed to have done – it would have determined that investors in the funds were being exposed  as much as 10 times the credit risk of the underlying, already risky, debt in exchange for 1 percent or 2 percent higher returns than a diversified, transparent high-yield bond portfolio would have earned.

Regions Morgan Keegan is the investment banking and securities division of Regions Financial Corp, the largest banking system in middle Tennessee.  The brokerage firm has offices in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.