Raymond James & Associates Inc. was tagged last week to pay
$762,000 in an arbitration case stemming from penny stocks a legacy Morgan Keegan financial adviser bought for clients from 2007 to 2010.
Raymond James & Associates is the employee broker-dealer arm of Raymond James Financial Inc., the holding company that acquired Morgan Keegan & Co. Inc. in 2012 for $1.18 billion from Regions Financial Corp.
More than 20 claimants initially filed the arbitration claim against the firm in 2014 and sought $8.8 million in damages and costs, alleging that their Morgan Keegan adviser, who is not named in the complaint and is no longer in the securities industry, "misappropriated their retirement assets in unsuitable investments, including variable annuities and penny stocks, at significant costs" to the investors, according to the award, which was finalized on Friday.
"Claimants further alleged that Logan Burch Phillips, as branch manager at Morgan Keegan & Co., approved or directed their financial adviser's misdeeds and failed to protect the assets" of the investors, according to the award, which was issued by the Finra office of dispute resolution.
Eight of the investors settled with Raymond James & Associates in the matter, according to their attorney, Judson Lee. Twelve received the award, and two claims were denied.
"You couldn't have this penny stock scam without management knowing about it or turning a blind eye," said Mr. Lee. "All trades had to be approved and were unsuitable for the clients," who were predominately retirees, he added.
"Our case was built on a failure to supervise," Mr. Lee said.
The claimants received $327,000 in compensatory damages, $200,000 in punitive damages, attorneys' fees of $211,000 and costs of $24,000. Punitive damages are unusual in Finra arbitration awards.
"While we disagree that an award of any amount was justified, the arbitrators awarded less than 10% of the $8.8 million sought at hearing and denied the claims of two of the claimants in their entirety," wrote Raymond James spokeswoman Anthea Penrose.
When Raymond James bought Morgan Keegan, the firm was reeling from a mutual fund scandal after investors lost money in proprietary mutual funds that held mortgage-backed securities when the housing market collapsed in 2007. Regions Financial coughed up hundreds of millions of dollars to settle regulatory charges in the matter, and investors sued the firm in Finra arbitration.
"Morgan Keegan is kind of the gift that keeps on giving to claimants lawyers and is an ongoing nightmare for Raymond James," said Andrew Stoltmann, a plaintiff's attorney. "The reputational hits continue to come. These sorts of debacles have to drive Raymond James crazy."
