Morgan Keegan settled a complaint filed by the Securities and Exchange Commission alleging that it had permitted a Hedge Fund to purchase mutual fund shares after the deadline established for other investors. SEC rules require that the price of a mutual fund, referred to as its NAV, be determined once a day. Morgan Keegan set a policy that the NAV for its mutual funds be calculated as of 3 p.m. But Morgan Keegan created an exception for a Hedge Fund that was buying $35 million of Morgan Keegan mutual funds. That Hedge Fund was permitted to buy mutual fund shares until 4:30 p.m. and still receive that day’s NAV. This gave that Hedge Fund an unfair advantage compared to other investors who purchased those mutual funds. The full text of Morgan Keegan’s settlement with the SEC, in which it agreed to return all profits it made from these transactions and pay an additional $100,000 fine, can be found here.
