The RMK litigation involves investment funds managed by a branch of Morgan Keegan & Co., which is based in Memphis. Regions Financial Corp., headquartered in Birmingham, owns Morgan Asset Management, an arm of Morgan Keegan.

According to suits filed on behalf of plaintiffs in these cases, seven RMK investment funds took a nose dive because of their ties to the subprime mortgage lending crisis, and stockholders found themselves holding greatly devalued portfolios. Because the funds had been initially represented as low-risk, when in actuality they were tied to the volatile subprime lending market, stockholders are bringing suit against Regions Morgan Keegan for their losses.

According to the Daily News story, Judge Mays considered five putative class actions that were filed in the local federal court, and two motions to consolidate. The paper reports the judge’s ruling states actions that were included in the motions for consolidation “share both factual and legal issues, arise from the same facts, raise similar legal claims and name substantially the same defendants.”

Judge Mays has not yet named a lead plaintiff in the consolidation. He ruled out one group that had petitioned for the spot as being too large, with 19 individual and institutional investors, according to the Daily Times.

There are many individual claims still pending across the country in this matter.

Hyperion is working to reposition and revamp the funds, which faltered badly as a result of ties to subprime mortgage lending. It is estimated that investors, who were promised low-risk funds but were instead placed into high-risk securities, suffered losses up to 90 percent of the value of their funds when the mortgage lending crisis caused value of the funds to plummet.

According to the Commercial Appeal, the new fund managers are beginning by evaluating each portfolio individually, and trying to determine whether there is any chance the fund in question could rebound. Hyperion will then work to secure better investments for the funds, hoping to see an improvement when the overall economy improves.

Hyperion fund managers have cut dividends for all seven funds, while purchasing promising high-yield corporate bonds, with a goal of improving the long-term financial picture by developing capital growth, according to the Commercial Appeal.

According to a report in the Memphis Commercial Appeal, Hyperion Brookfield, based in New York, NY, took over the management of three open-end funds and four closed-end funds that had been managed by Morgan Asset Managment, an arm of Morgan Keegan, which is based in Memphis. Morgan Asset Management is owned by Regions Financial Corp., based in Birmingham, Ala.

The Commercial Appeal reports that Hyperion investors will reposition the funds and revamp the portfolios in an effort to revive them. New investments will focus on investment grade corporates and high-yield securities, according to Dana Erikson, who is now portfolio manager, the Appeal says.

Hyperion Brookfield has scheduled a conference call for shareholders on Sept. 4 to discuss specific plans of the portfolio restructuring.

The housing market’s decline is affecting the bottom line at banks nationwide, but the situation has dealt Regions a double-whammy in the shape of fallout from its Morgan Keegan mutual fund investments. The financial giant is facing a number of lawsuits with investors saying they were promised low-risk funds but were instead invested in funds based on risky subprime mortgages. Investors are claiming losses of up to 53 percent.

Now, financial analysts are advising Regions to conserve capital by eliminating dividends that would normally be paid to stockholders, cutting off a source of income for thousands of stockholders, The News reports.

The situation is made even gloomier because stockholders expected 2008 to be a banner year as the result of the November 2006 merger of Regions with AmSouth. The merger combined two of the largest banks in the state and gave Regions Financial Corp. a 16-state reach.

Although the bank is considered well-capitalized and financially sound, Regions’ loan loss fund has grown to $1.4 billion, which is 1.49 percent of net loans, The News reports. This is an increase from 1.45 percent in 2007, which the News says analysts consider a significant jump.

Currently, the News reports, Regions’ 38-cent quarterly dividend yields around 11 percent. The paper said banks are reducing dividends across the industry, largely due to the crisis in the housing market, as losses from home loans continue to climb.

According to the filing, the claim is based on alleged misrepresentation and omission of material information in the identified Funds’ registration statements and prospectus releases with regard to the nature, and the extent of the Funds’ investments in collateralized debt obligations (CDSs), together with the resulting exposure to the sub prime mortgage market.

The claim alleges further damages stemming from alleged false and misleading statements issued by Morgan Keegan with regard to the Funds’ safety, and capacity for generating income.

According to the report, Morgan Keegan directed the farmer-owned co-op toward a $10 million investment in mortgage-backed securities, including subprime.

CountryMark purchased the note on Aug. 10, 2007. Seven days later, ratings agencies downgraded the A+-rated investment to junk status and it remains in default.

CountryMark is suing Memphis-based Morgan Keegan, a division of Alabama-based Regions Financial Corp., to recover the purchase price, interest and attorney’s fees. In the suit, filed in U.S. District Court in Indianapolis, the company says Morgan Keegan failed to disclose the investment was substantially backed by subprime and midprime mortgages–a risky bet that ran counter to the group’s investment objective. Financial institutions nationwide have written off more than $100 billion such investments, and many more writedowns are expected.

“We have been let down by Morgan Keegan in so many ways,” Charlie Smith, CountryMark’s CEO, said in a statement.

A spokeswoman for Morgan Keegan says the company was merely a middleman in the transaction, selling a “Golden Key” security underwritten by Merrill Lynch.

“The commercial paper at issue in this suit had the highest available commercial paper rating ‘A-1+’ by Standard & Poor’s,” said Kathy Ridley, in an e-mailed statement. “Morgan Keegan acted only as a distributor in this transaction, buying the securities from Merrill Lynch, who was the underwriter, and then reselling them to CountryMark. Shortly after the sale this issue defaulted, a rare and unexpected occurrence with such a highly rated issue.”

CountryMark isn’t the only local company to feel stung by investment advice from Morgan Keegan. The Indiana Children’s Wish Fund, which grants wishes for terminally ill children, lost about $48,000 after a Morgan Keegan adviser suggested the group invest $223,000 in an intermediate-bond fund in June 2007.

The fund, which included mortgage-related securities, fell 22 percent before the Wish Fund yanked its investment. The Wish Fund eventually recovered its loss after filing an arbitration claim.

The suit, filed in Tennessee, claims that several of Morgan Keegan’s funds were invested in collaterized debt obligations (CDOs) that were backed by subprime mortgages. The lawsuit, like many others related to subprime debt obligations, claims investors who vested in the funds were not made aware of the fund’s full exposure to the risky loans until the loans faced greater deterioration in late 2007.

The Morgan Keegan lawsuit claims, “the funds lacked adequate controls and hedges to minimize the risk of loss from mortgage delinquencies which affected a large part of their portfolios.” The plaintiffs also say “the funds’ portfolios were materially misstated due to their failure to properly value CDOs; and the extent of the funds’ risk exposure to mortgage-backed assets was misstated.”