Investment banker Morgan Keegan & Company and two of its employees have been charged with fraud related to subprime mortgages sold in a number of states, including Mississippi, officials said this morning.

Values of securities backed by subprime mortgages, those sold below the prime lending rate, were fraudulently overstated by the Memphis-based company portfolio manager James C. Kelsoe Jr. and CPA Joseph Thompson Weller, according to a release from the Securities and Exchange Commission.

Morgan Keegan is a subsidiary of Birmingham-based Regions Financial Corporation. Regions’ banking division operates about 2,000 branches in the Midwest and Southeast, including three in Vicksburg. The banking arm is not a subject of the charges.

“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 in a statement.

“This misconduct masked from investors the true impact of the subprime mortgage meltdown on these funds,” said William Hicks, associate director in the SEC’s Atlanta Regional Office.

According to the SEC’s order initiating proceedings, Morgan Keegan priced each portfolio’s securities and calculated its daily NAV through its Fund Accounting Department. The NAV of an investment company is its total assets minus its total liabilities. An investment company calculates the NAV of a single share by dividing its NAV by the number of shares that are outstanding.

An administrative law judge will hear arguments in the case to determine sanctions and financial penalties.

A task force of regulators from Mississippi — including Secretary of State Delbert Hosemann — Alabama, Georgia, Kentucky, South Carolina, North Carolina, Florida, Tennessee, Missouri, Texas, Louisiana, Arkansas and Illinois participated in the case.

Contact Danny Barrett Jr. at dbarrett@vicksburgpost.com