MEMPHIS (CN) – Shareholders of a fund that the subprime mortgage crisis left “more bloodied than almost all of [its] rivals” say Morgan Asset Management knowingly misled them while its Helios Multi-Sector High Income Fund lost $359 million. Plaintiffs in the federal class action say the fund’s current board “has not conducted, and does not intend to conduct, any investigation whatsoever” of the former board’s allegedly illegal behavior.
Managers lured investors to the Helios Multi-Sector High Income by promising to invest “in a diversified portfolio consisting primarily of debt securities,” according to the 23-page complaint.
From 2007 onward, the defendants threw more and more money into subprime securities, while keeping quiet about losses, the class claims. While touting their alleged financial success, the defendants raked in exorbitant advisory fees based on inflated earnings reports, the complaint states.
The class claims that even in mid-2007, after numerous major news sources warned about the mortgage crisis and two Bear Stearns hedge funds collapsed, the defendants still delayed disclosing losses.
An annual shareholder report filed in June 2007 said that while the “mortgage-backed arena has had a negative impact on the net asset value of the Fund … this is also the best opportunity we have seen in years to secure better portfolio earnings for quarters to come.”
The massive losses, which reduced the fund’s holdings from $468 million to $109 million in one year, were finally disclosed in December 2007. Shares went from approximately $80 a share to below $10, the class claims.
“Defendants knowingly concealed from shareholders the Fund’s excessive concentration in and severe losses in risky illiquid securities by, among other things, filing misleading quarterly and annual reports that failed to disclose the true ‘fair values’ of the Fund’s risky illiquid securities,” the complaint states.
Demands that the current board take action against the former board have been met with a “never-ending ‘investigation’ regarding the Helios funds [that] is merely a pretense for doing nothing,” the complaint states.
The plaintiff shareholders charge Morgan Asset management and its former board with breach of fiduciary duty, violation of the Investment Company Act and unjust enrichment. They are represented by Paul Bramlett and Robert Bramlett of Bramlett Law Offices in Nashville, and Eric Zagar with Barroway Topaz Kessler Meltzer & Check of Radnor, Pa.
Three similar class actions alleging securities violations were filed against Morgan Asset Management and its former board in the same court.