Investors who are battling Morgan Keegan over the blowup of its bond funds are on a hot streak, with a former Major League Baseball all-star among the recent arbitration winners.
Investors have scored five consecutive wins against Morgan Keegan over the past two months, totaling $698,000 in compensatory damages and legal fees, according to an
InvestmentNews tally of recent arbitration awards published by the Financial Industry Regulatory Authority Inc. of New York and Washington.
Morgan Keegan & Co. Inc., a Memphis, Tenn.-based broker-dealer subsidiary of Regions Financial Corp. of Birmingham, Ala., faces hundreds of arbitration claims from investors who bought the company's bond funds and have seen as much as 95% of the funds' value evaporate since mid-2007. The Morgan Keegan bond funds lost bets on high-risk collateralized debt obligations
(InvestmentNews, Nov. 10).
One of the investors who won a Finra decision is sportscaster and former baseball player Tim McCarver, who won $100,000 in February after claiming that Morgan Keegan was negligent.
More important for investors, perhaps, was a single award of $267,711, the largest arbitration award yet against the company, according to the winning plaintiff's attorney, Andrew Stoltmann, who thinks that he will win more awards for clients.
The award went to Gary and Steve Fitzgerald, two brothers from California who alleged that Morgan Keegan made a "fraudulent misrepresentation" related to transactions in bond funds and the firm's proprietary funds. Their claim was for $429,622 in damages.
"Documents and testimony have really strengthened my clients' claims," said Mr. Stoltmann, a partner in Stoltmann Law Offices PC of Chicago.
For example, one e-mail was uncovered showing that Morgan Keegan gave advanced warning to institutional clients and large retail clients to get out of the funds ahead of small retail investors, he said.
"It's horrific evidence versus Morgan Keegan," Mr. Stoltmann said. "The average mom-and-pop investor" was the one most hurt.
The e-mail he is using in investors' claims was written by David D. Franks, a senior vice president with Regions Morgan Keegan Trust.
"We made the decision yesterday to exit the RMK Select High Income Fund and the RMK Select Intermediate Fund," Mr. Franks wrote in August 2007. "Subprime-mortgage fears made these funds guilty by association on the street."
DOZENS OF CASES
Mr. Stoltmann said that he has about 60 more cases involving Morgan Keegan bond funds, with investors' losses of $40 million.
Because fighting the claims is probably costing Morgan Keegan and Regions Financial tens of thousands of dollars in legal fees, some plaintiff's lawyers wonder why the firm isn't moving to settle investor claims.
But Morgan Keegan will continue to defend itself with vigor in all claims, according to a company spokesman.
"Of the 21 claims that have been heard by arbitration panels to date, all claims were denied in 12 of them, resulting in a zero award of damages to the claimant," Eric Ban, a company spokesman, wrote in an e-mail. "Cumulative damages in cases heard to date is $4.5 million, reflected in awards to claimants totaling just over $930,000."
Those results "support our belief that there were no improprieties in the management of these funds," Mr. Ban wrote.
E-mail Bruce Kelly at [email protected].
