Morgan Keegan Settles with the SEC For $200 Million Over Subprime MBS Fraud Charges

On June 22, 2011, the SEC announced that securities brokerage firm and investment manager, Morgan Keegan & Co. and Morgan Asset Management, agreed to a $200 million settlement. The SEC alleged that Morgan Keegan regularly inflated daily quotes in order to increase the net values of five separate RMBS bond funds and ignored lower values for the RMBS reported by the broker-dealers who were trading the securities. According to SEC, the company then sold and redeemed shares of those securities to investors based on inflated net asset values. MK Settlement.

Ambac, Underwriters Settle Putative Class Action for $33 Million

On May 6, 2011, Ambac Financial Group, Inc., several of its officers and directors, and several underwriters of Ambac securities offerings filed stipulations of settlement with the Southern District of New York to resolve a putative shareholder class action filed on behalf of purchasers and acquirers of Ambac securities. Plaintiffs claimed that the now bankrupt bond insurer concealed that it had lowered its policy underwriting standards, allowing it to insure risky financial products, including RMBS. The settlements provide for payments of $2.5 million by Ambac, $24.6 million by Ambac’s D&O policy insurers, and $5.9 million by the underwriters, UBS Securities, Goldman Sachs & Co., and JP Morgan Securities. Ambac Complaint. Ambac Settlement. Ambac Underwriters Settlement.

Rating Agency Developments

On March 17, Fitch released new regional rating criteria for Latin America RMBS, and a Mexican RMBS Addendum, which incorporates an increased data analysis observation period for Mexican RMBS transactions. Fitch Release.

On March 17, S&P updated its methodology for rating unregulated issuers’ hybrid instruments and for classifying the equity content of these instruments. S&P Release.

On March 15, Fitch published its criteria for rating U.S. equity REITs and REOCs. Fitch Release.

On March 15, Fitch published its criteria for rating U.S. mortgage REITs and similar finance companies. Fitch Release.

On March 14, Fitch published a comment that the recent out-of-court settlement between the Lehman debtors and the Dante trustee leaves continuing conflicts of law and uncertainty for cash flow structured finance transactions that have interest and currency rate swaps and “flip clauses”. Fitch Comment.

On March 14, Fitch updated its structured finance counterparty criteria. Fitch Release.

On March 14, Fitch published its covered bonds counterparty criteria. Fitch Release.

On March 14, S&P requested comments on its proposed methodology for rating nonsovereign issuers and structured finance transactions that exceed European Monetary Union sovereign ratings. Comments must be submitted by March 28. S&P Release.

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Schwab Pays $119 Million to Settle with SEC Regarding MBS Investments

On January 12, 2011, Charles Schwab Corp. announced a settlement with the SEC related to claims that it misled investors in connection with a mutual fund heavily invested in private mortgage-backed securities. The SEC’s claims included that the mutual fund, YieldPlus, was improperly marketed as low risk, and that the fund violated its own investment concentration rules. The case will proceed against the named individual defendants, who were not part of the settlement.  SEC Press Release.