Employees who were interviewed say they relied on the funds' past track record, ratings from research firm Morningstar Inc. and James Kelsoe, the funds' manager, according to the states.
The regulators are seeking to revoke Morgan Keegan's registration in their states, impose administrative penalties and bar several high-level employees, including Kelsoe and Stringer, from working in the securities industry within those states.
"This is primarily a Morgan Keegan problem, and the brokers shouldn't be held responsible," says Jake Zamansky, a New York City attorney who represents both investors and financial advisers. "The brokers were a conduit for misinformation."
Morgan Keegan said in a statement that it is disappointed in the filings by the states, Finra and the Securities and Exchange Commission, which charged the company with fraud Wednesday. It said the accusations are based on "erroneous analysis as to both the facts and the law," and that it intends to defend itself against the accusations.
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