December 21, 2012 / 9:40 PM / in 5 years

UPDATE 1-Accounting board trustee quits following US SEC charges

By Sarah N. Lynch

WASHINGTON, Dec 21 (Reuters) - A trustee of the foundation that governs the U.S. accounting standard-setting board has resigned, the foundation said on Friday, after the U.S. Securities and Exchange Commission charged her in a case involving toxic mortgage-backed assets.

Mary Stone stepped down from the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). The FASB is the steward of the Generally Accepted Accounting Principles (GAAP) system used by U.S. businesses.

Stone was one of eight former board members of Morgan Keegan, now an affiliate of Raymond James Financial Inc, who were charged earlier this month by the SEC with failing to oversee managers who inaccurately priced mortgage-backed assets ahead of the 2007-2009 financial crisis. [ID nL1E8NA3QE]

Robert Stewart, a foundation spokesman, said Stone did not cite a reason for her resignation, which was effective Friday.

She had previously been on leave of absence since Dec. 10, the same day the charges against her were filed.

Stone, 62, could not be immediately reached for comment at the Culverhouse College of Commerce at the University of Alabama where she works as a director at the accounting school.

In a previous statement, attorneys for six of Morgan Keegan’s independent directors named in the SEC matter, including Stone, said their clients “emphatically deny” the charges and “intend to contest this case vigorously.”

Stone was appointed to the foundation in 2010. She began serving in 2011. The names of appointees to the foundation, the FASB and the GASB are sent to the SEC so its commissioners may weigh in, but the commission does not have the power to reject nominees.

It was unclear if the SEC knew Stone was being investigated at the time of her nomination. An SEC spokesperson declined to comment, saying the agency does not discuss communications with private parties.

Stewart said he could not discuss the details of individual appointments. He said generally candidates undergo background checks and finalists’ names are submitted to the SEC where commissioners can have a chance to comment.

The FAF board of trustees ultimately votes on the nominees.

The SEC first charged Morgan Keegan, Morgan Asset Management and two of its employees including James Kelsoe, a star manager at the firm, in April 2010 with fraudulently overstating the value of securities backed by subprime mortgages.

Morgan Keegan settled the case in June 2011, agreeing to pay $200 million, while Kelsoe agreed to pay $500,000 in penalties and be barred from the industry.

The SEC’s recent charges against Morgan Keegan’s directors marked a rare instance in which the agency has taken action against a mutual fund board.

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