Reuters: Regulatory News: Rare opinion offers clues to Morgan Keegan's winning defense

Reuters: Regulatory News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

Rare opinion offers clues to Morgan Keegan's winning defense Aug 1st 2012, 23:12 By Suzanne Barlyn NEW YORK | Wed Aug 1, 2012 7:12pm EDT NEW YORK Aug 1 (Reuters) - An arbitration panel has denied a Mississippi-based entrepreneur's claim against Morgan Keegan & Co over $2 million of bond fund losses in a case that offers a glimpse into why the brokerage firm may be winning many similar disputes. Robert L. Calvert, who heads an engineering consultancy in West Point, Mississippi, failed to heed the securities industry's mantra, "Past performance is no guarantee of future results," an arbitrator wrote in the July 30 decision. That conclusion would not be unusual except that the funds, underwritten and sold by the brokerage, were the subject of civil fraud allegations by federal and state regulators, along with a $200 million civil fine in a 2011 se t tlement. The lengthy decision explanation by a Financial Industry Regulatory Authority arbitrator provides a window into typically closed-door legal proceedings between investors and their brokerages. That process usually ends with a terse ruling that offers few, if any, clues behind the decision. The ruling shows that the role some Morgan Keegan customers played in their own investing decisions, and their willingness to take on certain risks, can trump alleged wrongdoing by the brokerage. Morgan Keegan, now a unit of Raymond James Financial Inc , was inundated by more than 1,000 arbitration cases after its bond funds dropped as much as 80 percent in 2008. Arbitrators, in about half of the cases tried, have not awarded claimants a dime, according to Memphis-based Morgan Keegan. It is unclear how many cases the company may have settled. About 160 cases were still pending in mid-June. Calvert declined to comment. Calvert's lawyer was not available for comment. SKILLED INVESTOR Morgan Keegan's 2011 settlements with regulators included details of how a former star fund manager used risky mortgage-backed securities to inflate his funds' values. The brokerage neither admitted nor denied the allegations. Trying to convince arbitrators that the 2011 regulatory settlements should not be evidence in arbitration cases has been a key strategy for Morgan Keegan, including in the Calvert case. Arbitrators in this week's ruling allowed the settlements to become evidence in the case, but they did not actually use them in reaching their conclusion. While a panel of three arbitrators typically decide large cases, the proceeding that led the ruling included some twists: FINRA, for reasons that are unclear, removed the panel's chair during the three-week hearing after a complaint by one of the parties. Only one arbitrator signed the ruling after a second arbitrator died before the ruling was finalized with FINRA. That arbitrator wrote that investments by one of Calvert's companies in the Morgan Keegan funds, and a regional bank stock that Calvert personally held "were caught in a market tidal wave that swept away their value." But those losses did not occur because of advice from Morgan Keegan or its broker. A witness testified that Calvert's investment skills were almost as good as a professional's. Additionally, he personally decided how the funds were invested, according to the arbitrator. Calvert's companies received about $1 million in dividends and other earnings from the funds through 2009, according to the ruling. "We are pleased with the results," said Terry Weiss, a lawyer for Greenberg Traurig LLP, an Atlanta-based lawyer who represented Morgan Keegan in the case. "The panel agreed with the evidence and our arguments that ultimately this was an unprecedented market event that caused the losses in the funds," he said. Many lawyers for investors, however, have disputed Morgan Keegan's explanation for the losses, arguing, among other things, that the firm misled investors and its own brokers about the risks. Lawyers cannot use FINRA arbitration rulings to influence arbitrators' decisions in other cases. However, efforts to overturn those decisions in courts - an unusual step - can lead to judicial opinions that may be influential in other cases, say lawyers. The panel's decision to fault the investor and to ignore the Morgan Keegan regulatory settlements does not sit well with some attorneys who represent investors. "I have a problem with that," said Tom Ajamie, a Houston-based securities arbitration lawyer. Assessing the impact of improper sales practices over investors' long-term decisions is difficult, Ajamie said. "It's not enough to say that you bought it during good times and now you have to live in those circumstances," he said. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions