Morgan Keegan Losses Awarded by FINRA Arbitration Panels

Arbitration panels through the Financial Industry Regulatory Authority (FINRA) have returned awards totaling more than $600,000 in six claims brought by investors to recover Morgan Keegan losses that were allegedly caused by a scheme to defraud investors in certain bond funds managed by the Memphis brokerage firm.

The claims involved several former Regions Morgan Keegan (RMK) bond funds, including the RMK Select High Income Fund, RMK Strategic Income Fund and RMK Advantage Fund.

Although these funds were sold as relatively conservative investments, many have seen their value plummet as much as 90% due to heavy investments in sub-prime mortgages.

The cases alleged that Morgan Keegan defrauded investors by misrepresenting the extent of their holdings in the risky, illiquid investments that had not been tested through market cycles.

When the subprime mortgage market crashed in the middle of 2007, the investors in the Morgan Keegan bond funds suffered drastic losses that were not seen in other intermediate bonds and high income funds.

The Financial Industry Regulatory Authority (FINRA) oversees disputes between investors and about 5,000 brokerage firms throughout the country, with panels that include a mix of arbitrators who are part of the investment-industry as well as those who are not.

Awards of $187,215 and $109,881 have been returned in the two most recent cases to be decided, bringing the combined total to $604,000 in compensatory damages for Morgan Keegan bond fund losses have been awarded by six different panels so far.

It has been estimated that Morgan Keegan settlements and arbitration awards may eventually exceed more than $200 million.

In October 2008, FINRA revealed that investment arbitration claims had increased by 49% since 2007, with more cases filed in the first 10 months of 2008 than were filed in all of 2007. In addition to claims involving Morgan Keegan funds, a number of claims have been filed as a result of investment losses with Charles Schwab YieldPlus bond funds, which were also heavily invested in mortgage backed securities.