If there’s a smoking gun in the fraud complaints filed this week against Morgan Keegan, it could be an email trail in which a key employee admits to “worries about this bond fund” and “the potential risks associated with all that asset-backed exposure.”
The May, 2007 email from Gary Stringer to Roderick Hennek is one of the exhibits in an administrative complaint filed by several states Wednesday against the Memphis-based brokerage firm. Regulators say investors lost approximately $2 billion in Morgan Keegan bond funds that collapsed in 2008.
“Mr. and Mrs. Jones don’t expect that kind of risk from their bond funds,” wrote Stringer, a director of investments who was responsible for overseeing the due diligence performed on products including Morgan Keegan’s “select list” of investment products that passed the company’s screening tests. “The bond exposure is not supposed to be where you take risks. I’d bet that most of the people who hold that fund have no idea what it’s actually invested in. I’m just as sure that most of our FAs (financial advisers) have no idea what’s in that fund either.”
What was in the fund were risky subprime mortgages that helped to cause the financial crisis that unfolded in 2008 and continues today.
Hennek responds in part, “I really think you have a big sell job on your hands, an uphill battle! Note I copied no one on this email.”
