NEW YORK, Jan 23 (Reuters) - Regions Financial Corp has agreed to $125 million of settlements to resolve lawsuits accusing it of mismanaging three Morgan Keegan bond mutual funds that collapsed in 2007 after investing heavily in subprime mortgages and other risky debt.
The preliminary settlements call for $110 million of cash to be paid to investors in Morgan Keegan’s Short Term Bond, Select Intermediate Bond and Select High Income funds, and $15 million of cash to go directly to the funds, less any legal fees.
Papers outlining the settlements, which resolve two class-action lawsuits by the funds’ shareholders, were filed Thursday in the federal court in Memphis, Tennessee, where Morgan Keegan has offices. Regions, a southeast U.S. regional bank, is based in Birmingham, Alabama.
The settlements require court approval. Regions sold Morgan Keegan to Raymond James Financial Inc in 2012.
Regions had no immediate comment on the settlements. It has said it would indemnify Raymond James for legal matters involving Morgan Keegan, and that its indemnification obligation was valued at $193 million as of Sept. 30, 2014.
The settlements follow Regions’ agreement in June 2011 to pay $210 million to settle charges by the U.S. Securities and Exchange Commission and other regulators that Morgan Keegan fraudulently misled investors about the risks of several funds.
These funds included bond funds marketed as conservative investments for older investors, but which nonetheless lost more than half of their value in 2007 as credit conditions worsened.
According to Morningstar Inc, the Select Intermediate Bond A fund fell 50.3 percent that year, while the riskier Select High Income A fund tumbled 59.7 percent.
The SEC claimed that Morgan Keegan hid the falling value of some funds between January and July 2007, and “recklessly” sold shares at inflated prices.
James Kelsoe, a Morgan Keegan portfolio manager, accepted a securities industry ban as part of the SEC settlement.
The three mutual funds in Thursday’s settlements now carry the Helios name, and are being liquidated, court papers show.
Lawyers for the funds’ shareholders plan to seek fees of up to 30 percent of the settlement amounts.
Shareholders had, in 2011, proposed partial settlements, but the court never ruled on their motion.
The case is In re: Regions Morgan Keegan Securities, Derivative and ERISA Litigation, U.S. District Court, Western District of Tennessee, No. 09-md-02009. (Editing by Bernadette Baum)