Morgan Keegan's legal fees are piling up

Firm's tab in 2009 equaled 12% of revenue; bond funds that blew up are to blame

Feb 28, 2010 @ 12:01 am

By Bruce Kelly

Facing intense pressure from securities regulators and investors, Morgan Keegan & Co. Inc.'s legal fees have skyrocketed during the past two years to $251 million, leaving some industry observers shocked.

The firm's legal costs are largely the result of defending itself from investor claims stemming from poorly performing bond funds that held toxic mortgage-backed securities.

Legal expenses accounted for 12% of the firm's total revenue in 2009, versus 6% a year earlier.

In all, Morgan Keegan had revenue of $1.28 billion last year and spent $161 million in “professional and legal fees.” In 2008, it spent $90 million on such fees and reported $1.34 billion in revenue.

The legal expenses were reported last Tuesday in the annual report of Regions Financial Corp., which owns Morgan Keegan.

“It makes you wonder who in the world was calling the shots” at the firm regarding its legal strategy, said Dale Ledbetter, a plaintiff's attorney with about 75 investor arbitration claims against Morgan Keegan.

“They haven't yet fought class-action suits, the states and the SEC,” he said. “It's absolutely staggering.”

The firm will continue to rack up significant legal expenses, industry observers said.

Morgan Keegan is “potentially on the hook for tens of millions of dollars, if not more,” said Andrew Stoltmann, another plaintiff's lawyer. He has about 15 clients suing Morgan Keegan.

A spokesman for Regions Financial, Tim Deighton, said that the firm wouldn't comment beyond what was reported in the filing.

Meanwhile, securities regulators are hammering away at the firm.

Last summer, both the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. issued Wells notices to Morgan Keegan, a preliminary step in taking disciplinary action against a broker-dealer.

The potential actions relate to the bond funds, Regions Financial stated. The SEC has also filed a Wells notice over the firm's sale of auction rate securities.

With the fallout still coming from the historic market drop, other broker-dealers face rising legal costs. However, they may not be as stark as those of Morgan Keegan.

In November, Raymond James Financial Inc. said in its annual report for fiscal 2009 that the provision for loan losses, legal proceedings, bad debts and other accruals was $186.4 million. That compared with a $68.8 million provision in fiscal 2008 for the same items.

In its various operations, Raymond James has about four times as many brokers and advisers as Morgan Keegan, which had 1,267 brokers in 324 offices at the end of last year.


Plaintiff's attorneys say that Morgan Keegan faces hundreds more arbitration claims from investors who bought the company's bond funds and watched as the funds lost as much as 95% of their value.

In January alone, Morgan Keegan lost separate claims with awards of $2.5 million and $1.1 million.

Although some high-profile investors such as ex-NBA All-Star Horace Grant have won significant awards in arbitration, Morgan Keegan has also scored significant wins. In November, an $8.2 million investor complaint that alleged unsuitability and breach of fiduciary duty related to the firm's bond funds was denied.

E-mail Bruce Kelly at


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