The Securities and Exchange Commission (SEC) has begun legal proceedings against Morgan Keegan and Morgan Asset Management after alleging that the two firms deliberately misled investors.
According to the filing, internal prices of securities in funds managed by Morgan Asset were incorrectly made by Morgan Keegan.
This led to inaccurate net asset values (NAVs) being produced which resulted in shares being sold to investors with inflated prices, the regulator claimed.
The SEC explained that legal action is being taken against both firms and two employees.
Robert Khuzami, director of the SEC's Division of Enforcement, said: “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.”
William Hicks, associate director in the SEC's Atlanta Regional Office, added: "This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds."
Morgan Keegan has denied the charges and claimed in a statement that the case is based on inaccurate data.
James Ritt, Morgan Keegan general counsel, said: “We have always held our obligations to our clients and to regulatory law with the utmost seriousness.”
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