Compliance Solutions for Investment Advisers

The States Are No Pushovers

For advisers transitioning to state registration, be aware that states, much like the SEC, has enforcement divisions and brings enforcement actions that result in fines. Here is one from Connecticut:

Morgan Asset Management, Inc. (IARD # 111715) and Morgan Keegan & Company, Inc. (CRD # 4161) Settle Allegations Relating to Inadequate Disclosure in Fund Sales; $7,771 Fine Imposed

On December 13, 2011, the Banking Commissioner entered a Consent Order (Docket No. CO-11-7966-S) with respect to Morgan Asset Management, Inc., an investment adviser registered with the Securities and Exchange Commission, and Morgan Keegan & Company, Inc., a Connecticut-registered broker-dealer.  Morgan Asset Management, Inc. maintains its principal office at 1901 6th Avenue North, 4th Floor, Birmingham, Alabama.  Morgan Keegan & Company, Inc. is located at 50 Front Street, Morgan Keegan Tower, Memphis, Tennessee.  The Consent Order followed a multi-state investigation and related investigations conducted by the SEC and the Financial Industry Regulatory Authority (FINRA).  The investigations focused on seven proprietary mutual funds sold by Morgan Keegan to more than 30,000 account holders.  Approximately 55 investors were located in Connecticut.  Nationwide, the seven mutual funds lost approximately $1.5 billion dollars from March 31, 2007, to March 31, 2008.

In addition to citing the respondents for alleged supervisory failures, the Connecticut consent order, like those of other settling states, alleged that the respondents misled investors by failing to disclose risks regarding the affected funds and providing misleading information about securities products.  The consent order required the respondents to pay $200 million, split between an SEC Fair Fund and a States’ Fund, both for the benefit of investors.  Under the multi-state settlement, investors must file a claim with the Fund Administrator to recover damages.  The Fund Administrator (A.B. Data) may be contacted by phone (888-208-9083) or mail (Morgan Keegan Settlement Claims Administrator, c/o A.B. Data,  Ltd., PO Box 170500, Milwaukee, Wisconsin  53217-8091).  The Fund Administrator also maintains a website at www.abdataclassaction.com.

The Connecticut Consent Order also 1) directed the respondents to cease and desist from regulatory violations; 2) fined the respondents $7,771 (Connecticut’s share of the $10 million multi-state settlement); 3) prohibited the respondents from creating, offering or selling to non-institutional investors any proprietary fund for two years; 4) required Morgan Keegan & Company, Inc. to reimburse the department for the costs of a books and records examination to be conducted within 24 months; 5) required the respondents to provide their agents and investment adviser agents with compliance training for three years; and 6) incorporated the requirement from the multi-state settlement that the respondents retain an independent consultant to evaluate their supervisory and compliance procedures.

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