Bond Fund Claims Against Morgan Keegan Results in $3.6M in Awards

Two arbitration panels have ordered Morgan Keegan & Co. to pay a combined total of $3.6 million to two investors who lost money in the brokerage firm’s bond funds, which collapsed after the subprime mortgage crash in 2007.

The Financial Industry Regulatory Authority (FINRA) ruled in favor of the investors in two seperate bond fund arbitration claims filed against the company by Andrew Stein, of Jupiter, Florida, and General Henry Cobb, of Birmingham, Alabama. Cobb’s claim, which resulted in a $1.1 million award, was filed on behalf of three investment holding companies founded by the World War II Army veteran. Stein’s claim, which resulted in a $2.5 million award, was filed on behalf of the 38 year old investor and two of his companies.

Both arbitration claims involved similar allegations that Morgan Keegan was responsible for substantial losses in certain bond funds offered by the company as a result of negligence and failing to disclose the true amount of risk associated with the investments. The brokerage firm was also accused of artificially inflating the value of the funds’ assets to make them more stable.

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The bond funds were heavily invested in the subprime mortgage market, and lost as much as 82% in value after the market imploded. The funds were subsequently taken from Morgan Keegan by its parent company, Regions Financial Corp., and transferred to Hyperion Brookfield Assed Management, Inc., which has since liquidated and closed down two of the funds.

Cobb sought $1.4 million in compensation for his losses and was awarded $1.1 million. Stein sought $12 million, and received $2.5 million. Stein’s award is the largest so far against Morgan Keegan over the bond funds, which has lost about a dozen cases and settled some others. FINRA, which oversees about 5,000 brokerage firms throughout the United States, did not provide an explanation for the rulings.

The decisions follow a September victory against Morgan Keegan by former National Basketball Association star Horace Grant, who was awarded $1.46 million for losses he suffered while invested in the funds. Morgan Keegan is appealing that decision.

Hundreds of other similar Morgan Keegan bond fund arbitration claims are currently pending against the brokerage firm. The cases involve several different Morgan Keegan funds, including the RMK Strategic Income Fund, RMK Select High Income Fund and RMK Advantage Fund. Some analysts speculate that Morgan Keegan bond fund awards may eventually exceed $200 million.

The Securities Exchange Commission (SEC) issued a “Wells Notice” last year to Morgan Keegan over the funds, an indication that it is considering criminal charges for violations of investment laws.


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