lost $30 million in fraud

About 1,200 investors in Mississippi lost about $30 million as a result of fraud related to subprime mortgages sold by Morgan Keegan & Co. in a number of states, according to Secretary of State Delbert Hosemann.

Restitution will be sought for the investors by Hosemann, acting as administrator of securities in the state, and by counterparts in Alabama, South Carolina and Kentucky, Hosemann said Wednesday when more detailed information was released. They also hope to have the firm’s licenses to do business in the states revoked. A task force of regulators in nine other states assisted the Securities and Exchange Commission in federal complaints against the company.

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 the SEC.

State regulators accused three others, Brian B. Sullivan, president of and chief investment officer for Morgan Asset Management, which managed the funds, Gary Stringer, director of investments for Morgan Keegan’s Wealth Management Services division and Michele Wood, a compliance officer, of misrepresenting how much the funds were worth and how risky an investment they’d be for those involved, in many cases investors nearing retirement.

The particular mutual funds at issue lost about $2 billion between March 31, 2007, and March 31, 2008, affecting about 13,000 customers overall.

“If the allegations in the joint notice are found to be accurate by the hearing officers, we and other states involved in the investigation intend to hold these companies responsible,” Hosemann said Wednesday.

An administrative law judge will hear arguments in proceedings initiated by the SEC to determine sanctions and financial penalties.

Contact Danny Barrett Jr. at dbarrett@vicksburgpost.com