Court Revives SEC Fraud Lawsuit Against Morgan Keegan

Morgan Keegan & Company must answer again in a lawsuit filed by the Securities and Exchange Commission for fraud after a federal appeals court ruled this week that the state court wrongly dismissed the lawsuit against the investment company.

The 11th U.S. Circuit Court of Appeals returned the case to an Atlanta state court to be heard again, ruling that the local district judge erred in the prior ruling that Morgan Keegan gave sufficient warning and insight into the risks involved with auction-rate securities in 2008.

As financial markets began to crumble, Morgan Keegan allegedly led investors to believe that auction-rate securities were the same as cash. The securities lost value as the mortgage industry collapsed in 2008. The U.S. Securities and Exchange Commission filed a lawsuit against the Memphis investment company in 2009.

The decision to continue the lawsuit against the investment firm also continues to link Regions Financial Corp. to Morgan Keegan. The bank sold the investment company for more than $1 billion earlier this year. Regions Financial Corp. must continue to pay legal costs related to the securities lawsuit. The bank paid a $210 million SEC fine in 2011, but admitted to no wrongdoing.

At the core of the lawsuit will be the decision of whether Morgan Keegan failed to tell investors of certain risks when the investment firm sold more than $647 million in auction-rate securities to 1,145 customers. The judge will likely weigh in on the influence and wording by the company through e-mails, brochures and the spoken word used by brokers.

In the lawsuit, the SEC will likely continue to argue that Morgan Keegan realized the auction market was drying up in 2007 and 2008, but continued to broker the securities.

Source: Chicago Tribune, "Federal appeals court overturns ruling, revives SEC suit against Morgan Keegan," Ted Evanoff, May 3, 2012

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