Stoltmann Law Offices
10 S. LaSalle Street
Suite 3500
Chicago, IL 60603
ph: 312.332.4200
fax: 312.332.4201
www.InvestmentFraud.PRO
Andrew@StoltLaw.com

Andrew Stoltmann discussed the resignation of SEC Chairman William Donaldson on CNN’s Lou Dobbs Tonight. 

Cases Pending/Current Investigations

We are either representing clients against the following financial advisors and/or brokerage firms or are investigating claims against the following individuals and/or firms. For our client’s arbitration claims or lawsuits, we are seeking the client’s losses, attorney fees, interest and costs. For more information on these cases or the status of our investigation, please contact Stoltmann Law Offices at 312.332.4200 or at 877.332.4244.

Morgan Keegan Bond Fund Losses

At Stoltmann Law Offices (312.332.4200), we are currently representing clients of Morgan Keegan & Company (“Morgan Keegan”) who purchased the Morgan Keegan Select Intermediate Bond Fund (“Intermediate Fund”) and/or Regions Morgan Keegan Select High Income Fund (“High Income Fund”) and have suffered investment losses. We have concluded our investigation and the results are listed below. If you’ve suffered losses at Morgan Keegan or in these funds and would like to hear about how to recover your losses, please contact Stoltmann Law Offices at 312.332.4200 or Andrew@StoltLaw.com.

Summary: Year to date, the Morgan Keegan Select Intermediate Bond Fund (symbol RIBCX) and the Morgan Keegan Select High Income Fund (symbol MKHIX) are down 47% and 56%. The Funds and the stockbrokers selling these funds misrepresented or failed to disclose material facts relating to (i) the nature of the risk being assumed by an investment in the Funds, (ii) the illiquidity of certain securities in which the Funds invested, (iii) the extent to which the Funds’ portfolios contained securities that were illiquid or exhibited the characteristics of illiquid securities so that they were highly vulnerable to suddenly becoming unsalable at the prices at which they were being carried on the Funds’ records, (iv) the extent to which the Funds’ portfolios were subject to fair value procedures, (v) the extent to which the values of such securities, and, consequently, the net asset values (“NAVs”) of the Funds, were based on estimates of value and the uncertainty inherent in such estimated values, and (vi) the concentration of investments in a single industry.

Losses Sustained: As of November 23, 2007, Morningstar reported the High Income Fund’s NAV was down almost 55% year-to-date; from December 31, 2006 until November 30, 2007, the High Income Fund’s NAV per share declined from $10.14 to $3.91 for a loss of $6.23 per share, or 61.4%. As of November 23, 2007, Morningstar reported the Intermediate Fund’s NAV was down over 43% year-to-date; from December 31, 2006 until November 30, 2007, the Intermediate Fund’s NAV per share declined from $9.93 to $5.07 for a loss of $4.86 per share or 48.9%. Of 439 other intermediate bond funds and 253 other high income funds, none suffered losses of this magnitude during the same period.

Causes of the Losses: These extraordinary losses in share value were caused by the Funds’ heavy investment in relatively new types of manufactured or structured fixed income securities that had not been tested through market cycles and by the failure of the Funds to have previously complied with required and disclosed procedures relating to the manner in which the Funds’ assets were invested, the liquidity of their assets would be maintained, the lack of liquidity in the Funds’ portfolios, the pricing of their assets, the valuation procedures used to price their assets, the uncertainty inherent in the estimated value of their assets, and/or the failure to disclose such breaches and failures and conditions in the Funds’ portfolios that rendered them extraordinarily vulnerable to changes in market conditions, far more vulnerable than other intermediate bond and high income funds affected by the same events and conditions in the subprime and other markets in 2007.

As the subprime events unfolded in the fixed income markets in the summer of 2007, buyers of, including purported market makers for, these financial instruments disproportionately (compared with their peer funds) purchased by the Funds disappeared, as such securities became suspect even when the underlying collateral continued to pay principal and interest. This resulted in a greater supply of such securities than a demand for such securities which in turn caused the values of all similar types of such securities to drop dramatically, an entirely foreseeable event for securities that traded in thin markets or for which market quotations were not readily available, as was the case with a significant portion of the Funds’ portfolio securities. In an open-end fund, such as the Funds, such drops in aggregate asset values are immediately translated into losses in the Funds’ net asset value per share because the per share price at which open-end funds buy and sell their shares is the value of the net assets of the fund-i.e., the value of assets minus liabilities-divided by the number of outstanding shares.

The Funds’ extraordinary losses in share value were not caused by economic or market forces. The events experienced by the fixed income securities markets in 2007 affected all fixed income funds but had a far greater adverse effect on the Funds than on their intermediate and high income peers because the Funds’ portfolios were significantly different than their respective peer funds. The Funds contained disproportionately large positions in the new untested structured financial instruments and other illiquid securities-i.e., securities for which market quotations were not readily available and, therefore, could be valued only by the use of fair value pricing procedures based on estimates of value that are inherently uncertain.

The disproportionate adverse effect of these events on the Funds could not reasonably have been foreseen or anticipated by persons investing in the Funds, in light of the Funds’ disclosures and perception in the market place and their failure to disclose the extent to which their portfolios held securities uniquely vulnerable to these kinds of market events and the risks inherent in holding such large amounts of such securities. The disproportionate adverse effect of these events on the Funds could and should reasonably have been foreseen and anticipated by Morgan Keegan in view of the magnitude of illiquid securities in the Funds’ portfolios and the recent history of similar events affecting niches of the fixed income securities markets and the SEC, industry and accounting guidance regarding the need for open-end funds to ensure they have liquid portfolios and the valuation difficulty/uncertainty attendant to thinly traded and illiquid securities.

The Funds we investigated heavily invested in collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), and collateralized mortgage obligations (“CMOs”), collectively sometimes referred to as “collateralized debt obligations” (“CDOs”) or “structured financial instruments.” These securities are usually only thinly traded-i.e., market quotations for these securities are not readily available-and, based on their characteristics, are illiquid. As a consequence, the values of these securities can only be estimated, which estimated valuations are inherently uncertain.

No other intermediate term or high-yield bond fund had invested as heavily in these structured financial instruments as did the two Morgan Keegan Funds. Indeed, on July 19, 2007, Bloomberg News quoted Jim Kelsoe, the senior portfolio manager of the two Funds, as having an “intoxication” with such securities. Bloomberg further reported that an analyst at Morningstar, Inc., the mutual fund research firm, noted that “[a] lot of mutual funds didn’t own much of this stuff” and that the High Income Fund was “the one real big exception.” Thus, the extraordinary decline (as compared with other funds of their type) in the Funds’ net asset value was caused by the illiquidity of the market for the Funds’ securities whose values could only be estimated in the absence of readily available market quotations.

Misleading Sales Material: In sales materials dated June 30, 2007, the High Income Fund represented to existing and prospective shareholders that the Fund provides the “[p]otential for lower NAV volatility than typical high-yield funds.”

In its sales materials dated June 30, 2007 and September 30, 2007, the High Income Fund represented to existing and prospective shareholders the following: -”Opportunity for High Current Income . . . The relatively conservative credit posture of the Fund reflects our goal of higher yields without excessive credit risk.” -”Broad Diversification“: A unique advantage of the Select High Income Fund is its diversification across a wide variety of high-income debt and equity-linked securities. Not limited to high-yield corporate bonds, we invest in many types of mortgage-backed and asset-backed securities, as well as various types of convertible securities and income-producing stocks.”

In its sales materials dated September 30, 2007, the Intermediate Fund represented to existing and prospective shareholders the following:

1. “The Fund provides:
   1. “A higher level of current income than typical money market investments
   2. “A diversified portfolio of mostly investment-grade debt instruments, with some exposure to below-investment-grade assets.”
2. “Concentrate on Value Credit fundamentals and relative value drive the investment decisions. The Fund’s focus is on “undervalued” and “out-of-favor” sectors and securities, which still have solid credit fundamentals. In addition to purchasing investment-grade securities to fulfill its investment objectives, the Fund may invest up to 35% of its assets in below-investment-grade debt securities. The portfolio seeks to maintain a balanced exposure across the investment-grade spectrum.”
3. “Broad Diversification”: The single best way to reduce the risk of any portfolio is through adequate diversification. The Intermediate portfolio is diversified not only with regard to issuer, but also industry, security type and maturity. Furthermore, the Select Intermediate Bond Fund does not invest in speculative derivatives.”

The High Income Fund disclosed that Morgan Management, in managing the High Income Fund’s portfolio, would “employ an active management approach that will emphasize the flexibility to allocate assets across a wide range of asset classes and thereby provide the advantages of a widely diversified high income portfolio. . . . In addition to the traditional below investment grade corporate market, the Adviser will strategically utilize asset-backed securities, mortgage-backed securities and other structured finance vehicles as well as convertible securities, preferred stock and other equity securities. The Adviser believes that the opportunity to acquire a diverse set of assets will contribute to higher total returns and a more stable net asset value for the fund than would result from investing in a single sector of the debt market such as below investment grade corporate bonds. . . .”

Recognizing the need to maintain “liquidity and flexibility” as a “defensive tactic” in “unusual market conditions,” the Intermediate Fund disclosed that it would invest in investment-grade short-term securities. Neither Fund disclosed in their common prospectus that the Funds were exposed to concentration risk: the risk that a heavy concentration in a sector or in a type of fixed income security may result in a loss if that sector or type of security goes out of favor due to market sentiment or economic conditions, particularly if those securities trade in a thin market.

Neither Fund disclosed in their common prospectus that the Funds were exposed to liquidity risk: the risk that the Funds’ exotic, new, untested structured securities traded in a thin market and were at risk of suddenly becoming unsalable because the small number of market makers might disappear, leaving the Funds with no one to buy their securities when they want to sell them.

The Funds did not disclose in their common prospectus that they were subject to a “fundamental” investment restriction that prohibited them from investing more than 25% of the Fund’s total assets in the same industry. The Funds represented in their SAI that they “may not . . . [p]urchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities) if, as a result, 25% or more of the fund’s total assets would be invested in the securities of companies whose principal business activities are in the same industry.”

The Funds violated the investment restriction against investing more than 25% in the same industry by investing more than 25% of total assets in securities comprised of companies that are engaged in the mortgage loan industry, securities that are derivatives or packages of mortgage loans, and other securities dependent upon or related to the mortgage loan industry. For example, Bloomberg reports that, as of June 30, 2007, the asset allocation of the High Income Fund was as follows:

• Government securities 0.00%
• Corporate bonds 25.09%
• Mortgages 52.32%
• Preferred stock 5.91%
• Municipal bonds 0.01%
• Equity 11.57%
• Cash and other 5.09%

The Funds violated the investment restriction against investing more than 25% in the same industry by investing more than 25% of total assets in securities comprised of companies that are engaged in the mortgage loan industry, securities that are derivatives or packages of mortgage loans, and other securities dependent upon or related to the mortgage loan industry. For example, Bloomberg reports that, as of June 30, 2007, the asset allocation of the Intermediate Fund was as follows:

• Government securities 0.11%
• Corporate bonds 41.65%
• Mortgages 54.71%
• Preferred stock 2.67%
• Municipal bonds 0.00%
• Equity 0.00%
• Cash and other 0.87%

In addition to impermissible industry concentration, the Funds’ also suffered from an undisclosed concentration of credit risk in that the Funds’ portfolios were heavily invested in structured financial instruments and in a single industry, which risk required financial statement disclosure under generally accepted accounting principles.

What Caused the Funds’ Huge Losses: The extraordinary declines in the Fund’s respective net asset values, and the accompanying losses suffered by investors occurred because:

1. The Fund’s assets were invested in violation of restrictions on the amount of illiquid securities in which the Fund was permitted to invest;
2. The Funds were not properly valuing their portfolio securities to take into account all relevant factors, including but not limited to the nature of the markets for such securities and the uncertainty inherent in the estimated values of such securities;
3. The valuations of the high-yield and structured securities in which the Fund invested were uncertain and such uncertainty was not disclosed to existing or prospective shareholders;
4. The Funds were heavily invested in illiquid or thinly traded high-yield and structured securities in concentrations exceeding what comparable funds held;
5. The Funds’ investments exceeded the 25% limit on investments in a single industry;
6. The Funds’ portfolios were exposed to concentrations of credit risk because of their heavy investments in CDOs; and
7. The structured financial instruments in which the Funds were substantially invested are relatively new instruments whose performance in adverse market conditions had not been tested.

Misrepresentations and Omissions Made By Morgan Keegan Brokers, Advisors and Stockbrokers: In connection with the offer and sale of the High Income Fund’s shares, the Morgan Keegan brokers made the following representations in the Fund’s registration statements or amendments, including prospectuses and statements of additional information, and in annual and semi-annual reports and other documents filed with the SEC and in sales materials:

1. The High Income Fund provided the potential for high current income from a broad range of asset classes;
2. The High Income Fund provided diversification across multiple fixed income asset classes;
3. The High Income Fund provided the potential for lower NAV volatility than typical high-yield funds;
4. The High Income Fund’s “relatively conservative credit posture . . .reflects our goal of higher yields without excessive credit risk”;
5. The High Income Fund would not invest solely in below-investment grade securities but would “strategically utilize asset-backed securities, mortgage-backed securities and other structured finance vehicles;”
6. The High Income Fund’s ability to “acquire a diverse set of assets will contribute to higher total returns and a more stable net asset value for the fund than would result from investing in a single sector of the debt market such as below investment grade corporate bonds;”
7. The High Income Fund would not purchase any security if, after the purchase thereof, more than 15% of the Fund’s portfolio consisted of illiquid securities;
8. The Fund could not invest more than 25% of its net worth in a single industry.

For more information on recovering losses in the Morgan Keegan bond funds, please contact Stoltmann Law Offices @ 312.332.4200 or Andrew@StoltLaw.com.

American Home Mortgage, New Century Financial Corp., Novastar and other similar companies

We currently are representing clients who have suffered investment losses due to the subprime meltdown. Specifically, we are filing claims related to losses in preferred stocks of sub-prime issuers like American Home Mortgage, New Century Financial Corp., Novastar and other similar companies.

These investments were pitched by brokers and advisors at Merrill Lynch, Wachovia, Smith Barney, AG Edwards, Edward Jones, and Morgan Stanley as safe and secure investments that couldn’t (or wouldn’t) lose money. Unfortunately, these representations proved to be false and clients suffered complete losses.

For example, one 94 year old client of Stoltmann Law Offices was pitched an investment in American Home Mortgage at Merrill Lynch as an “ultra safe” and secure investment. This client, in a preferred stock, suffered a complete loss of hr principal.

If you sustained investment losses in subprime related issues like American Home Mortgage, New Century Financial Corp., Novastar or other similar companies, you may be able to recover some, or all, of your investment losses. For more information, please contact Stoltmann Law Offices at (312) 332-4200 or Andrew@StoltLaw.com.

Donald Overbey

We are currently representing former clients of Oscar Donald Overbey who was at one point an Ameriprise (American Express) financial adviser based in Illinois. Don Overbey already has had his Illinois license revoked and is prohibited from serving as an investment adviser in Illinois. There are at least 8 victims who unfortunately lost millions of dollars in fraudulent schemes, purportedly investments in the coffee business (called Color Me Coffee), business loans, investment notes, real estate and even vitamins. The link below will take you to the Illinois Securities Department’s complaint. To receive a copy of the FINRA complaint created by Stoltmann Law Offices, please contact the Stoltmann Law Offices at 312.332.4200 or Andrew@StoltLaw.com.

Illinois Temporary Order of Prohibition and Temporary Order Suspending the Registration of Respondent