Between February 2008 and April 2009, Morgan Keegan & Co. (“Morgan Keegan”) was allegedly in the business of purchasing small business loans from across the country, pooling them together, and then reselling tranches of those pools to institutional investors. However, during that same time, the demand for these securities was falling. Morgan Keegan’s inventory levels continued to rise since it allegedly directed its Small Business Administration (“SBA”) Desk to sell of a large portion of the inventory. The desk allegedly entered a number of fictitious trades in an effort to artificially reduce the amount of SBA loans that the firm was holding. The SBA Desk then allegedly repeatedly manipulated the settlement dates, pushing back the date the fake trades were supposed to close in order to prevent the fraud from being uncovered.
As a result of this misconduct, it is likely that anyone who purchased these SBA loan securities from Morgan Keegan during this time period did so under false pretenses. In particular, Morgan Keegan allegedly masked the difficulty finding buyers for these securities by making false trades, which convinced customers that these SBA loans were far more liquid than they actually were.
