Last week, an Indiana charity that “makes wishes come true” for children with life threatening illnesses filed arbitration claims over subprime related losses it allegedly suffered in a bond fund managed by Morgan Keegan & Co. The Indiana Children’s Wish Fund claims that it lost $48,000, or 22% of its $220,000 investment, in the Regions Morgan Keegan Select Intermediate Bond Fund.

The Wish Fund claims that it was misled by Morgan Keegan concerning the level of risk it assumed by investing in the fund. According to the Wish Fund, Regions Bank, an affiliate of Morgan Keegan, suggested that the Wish Fund move money from its money-market account into the bond fund. Regions Bank allegedly represented that the bond fund was an appropriate low risk alternative to a CD. The Wish Fund claims, however, that the bond fund was instead heavily invested in risky low-rated mortgage debt. Indeed, according to press releases, the bond fund at issue is down 45% in value since the beginning of the year.

Although the statement of claim in this arbitration is not publicly available, these types of claims are likely to implicate Errors & Omission policies, as compared to securities class action cases that would potentially implicate Directors & Officers policies.

We will continue to monitor developments with respect to this and other subprime related matters and report them to you on www.InsureReinsure.com.