VOL. 123 | NO. 23 | Monday, February 4, 2008
Trends & Analysis
One Couple's Tragedy Shows Reach of RMK Funds
By Andy Meek
One day during the summer of 2005, Jim and Genette Chase walked into the local Regions bank office near their Miramar Beach home in the Florida Panhandle. An accountant by trade, Jim had retired a few months earlier and was eager to build a nest egg he and his wife could live on.
They talked to a bank officer that day about putting the bulk of their retirement savings into certificates of deposit because CDs are insured and almost risk-free. But the Regions employee instead wanted the Chases to first speak with a broker at the adjacent Morgan Keegan office about a different and more lucrative investment opportunity. Regions is the parent company of the Memphis-based Morgan Keegan brokerage firm.
The couple eventually got talked into investing half a million dollars in a small group of Regions Morgan Keegan mutual funds, all of which had significant exposure to the now-chaotic mortgage market and throughout 2007 sustained massive losses because of it. By December 2007, the Chases had taken such a withering loss on their investment that they liquidated what little they had left in the funds.
Because some of the money they put into the battered RMK funds came from refinancing their Florida home, they're also now talking about selling the home. Jim Chase is a few months away from his 62nd birthday but he's looking for a new job because of the evaporation of his retirement savings.
"2007, needless to say, was not a very good year for my wife and me," he said.
Going all in, and losing
The Chases' losses, which sent the well-off, professional couple into a financial tailspin and left their retirement plan in disarray, come against the backdrop of a larger story. It involves big bets on the country's housing and mortgage industries made by groups including lenders, bankers, financial conglomerates, investors and individual homeowners.
One of those people was Jim Kelsoe, the manager at Morgan Keegan's asset management unit based in Downtown Memphis. Morgan Asset Management oversees the handful of RMK funds the Chases invested in.
Kelsoe earned a reputation among his peers as a successful money manager unafraid of risk in the world of mortgage-backed securities. It was partly because of his past successes that Clifford Rutledge, the Florida broker whom the Chases worked with, recommended the couple consider investing in the RMK funds in the first place.
"He indicated that the portfolio was Jim Kelsoe's, who he'd had discussions with in the past, and, because of him being a broker with Morgan Keegan, he had a very high opinion of," Chase said.
The Chases went ahead and invested about $500,000 in the RMK Advantage Income Fund. Several months later, in 2006, they went back to Rutledge and put another $200,000 into other RMK funds. Rutledge assured the couple the investments would be exposed to minimal risk, Chase said.
What the couple got, instead, was the opposite result they'd hoped for.
They ended up losing so much money - roughly $504,000 - that the Chases now are working with Chicago securities lawyer Andrew Stoltmann, who recently filed a claim on behalf of the Chases with the Financial Industry Regulatory Authority. They believe they were misled into putting money into a volatile set of investments and hope to recover at least some of what they lost.
"What's insane is there are probably a million other Jim Chases out there right now," Stoltmann said. "Here you have a guy looking for CDs, looking for fixed income, and instead he gets sold something that's on the polar opposite of the spectrum. And those risks aren't made clear to him."
The Chases' claim was among four Stoltmann filed last month. One of the other investors who lost money in the RMK funds and also believes Morgan Keegan was misleading about the nature of their risks is a Memphis reporter whom Stoltmann declined to identify, citing his client's wishes for privacy.
Two federal lawsuits filed by investors in various RMK funds are currently pending in U.S. District Court for the Western District of Tennessee.
A Morgan Keegan spokesman could not be reached for comment. Kelsoe summed up the financial environment he's operating in at the moment in a shareholder commentary he sent out last week that begins: "Since our last update, the capital markets have not shown any improvements whatsoever."
The turn of events has proved grueling for Chase, who served in the military for three years during the Vietnam War and later worked as an auditor for various government agencies for more than 30 years.
He and his wife's RMK investments began showing a loss some time around last February. At the time, the Chases had been out of town for several weeks visiting their daughter in Kentucky while her husband was serving in Iraq.
When they got back and saw the decline, they called their broker. The loss, he said, was due to the funds' exposure to assets related to the subprime mortgage market and eventually would correct itself. That satisfied the Chases until the next bout of bad news in July.
"There was a loss on paper of around $340,000, and we were just shocked," Chase said.
By October, the loss had grown by another $100,000. The Chases re-approached their broker, who assured them the funds' long-term health was sound, Chase said. In mid-December, however, they decided to pull the plug.
In the meantime, Chase's job search hasn't been particularly fruitful so far. The Florida Panhandle is notorious for its glut of low-paying, low-skill jobs, he said. He's considering a move to look for work elsewhere while his wife tries to sell their house.
"At my age, it's hard to find employment, except working at places like Wal-Mart," Chase said. "But all they want to pay you is at or a little above minimum wage. To me and my wife, this is just a really personal tragedy."