Morgan Keegan is back in court, this time in a bench trial scheduled to last two weeks in front of a judge who originally dismissed the SEC regulators’ claims, according to an article in Bloomberg Businessweek.
US District Judge William Duffy dismissed the action brought by the SEC which alleged Morgan Keegan misled thousands of investors about the high risks of auction-rate securities. The Court of Appeals in Atlanta, GA overruled Judge Duffy and remanded the case back down to him. Judge Duffy originally ruled that statements of the brokers were immaterial in light of disclosures on Morgan Keegan’s website, the article explains. The Court of Appeals did not agree with Judge Duffy, per the article, and the trial started on November 26, 2012.
Some of the broker statements classified the auction-rate securities as “liquid, short term investments” and did not disclose that the investors’ money could be “tied up” for a very long time, according to the SEC’s opening statement. The lawyer for the SEC went on to say the auction-rate securities were sold to investors as zero risk investments. Investors thought they could get their money back at any time due to the allegedly misleading statements of the brokers and unfortunately found that when they needed their money, it was not there. Morgan Keegan did start a buyback program at one point during the failure of the auction-rate securities it sold to its investors; this program only paid back principal invested.
Another point of contention between the District Judge and the Court of Appeals is Judge Duffy’s statement that not being able to predict the market is not a securities violation. The SEC is not alleging that Morgan Keegan was misleading investors because they could not predict the market. Instead, the SEC alleges that Morgan Keegan and its brokers were all aware that the auction-rate securities offered and sold to investors was nowhere near as safe as they advertised them to be. The SEC alleges that Morgan Keegan told investors that the auction-rate securities at issue were just the same as cash, or a cash equivalent, with “zero risk”, according to the article; however, the investors could not sell the securities when they tried after the auctions started to fall.
The SEC is seeking unspecified monetary penalties against Morgan Keegan. The case is Securities and Exchange Commission v. Morgan Keegan & Company Inc., 1:09-cv-01965, U.S. District Court, Northern District of Georgia (Atlanta).
If you or someone you know has lost money as a result of a Morgan Keegan product, please contact Richard Frankowski at 205-747-1903 to discuss your potential legal remedies.