Angry Arkansans Battle Morgan Keegan Over Lost Millions

by Jamie Walden  on Monday, Jun. 15, 2009 12:00 am  

Walter Morris, chairman of H&M Lumber Co. of West Helena and a veteran of the 1945 Battle of Okinawa, is now fighting Morgan Keegan over $70,000 lost in one of the company?s funds.


Marketing Nightmare

Funds that have been the subject of arbitration are the Regions Morgan Keegan High Income Fund, the RMK Advantage Income Fund, the RMK Multi-Sector High Income Fund and the RMK Strategic Income Fund. While the funds and the investment sizes vary, the issues are standard: Were the contents and risks of the funds misrepresented to clients and were the funds suitable for the clients to whom they were sold?

"These [funds] were derivative-laced, hedge fund-like investments that were portrayed to thousands of investors across the country as conservative, stable net-asset value bond funds," Stoltmann said.

"Basically, the true risks of these funds were not made clear to investors. And these funds took a huge sector bet with highly illiquid investments. And, more egregiously, they were portrayed as conservative bond funds. And they were anything but," Stoltmann said.

Ledbetter also claimed the portfolios contained derivatives. "A derivative is something that derives its cash flow from the performance of another instrument. And that's what all of these were," Ledbetter said.

Morgan Keegan, however, denies that the funds contained derivatives and that the funds were represented as conservative.

"There were a variety of different kinds of investments within these funds, but there were no pure derivatives," said Kathy Ridley, corporate communications director at Morgan Keegan.

Ridley referred to the 2003 prospectus of the RMK High Income Fund that, among other warnings, says clients could lose some or all of their money in the fund, which exhibits "greater price volatility" and is "less liquid."

Plaintiffs' attorneys argue, however, that prospectus warnings don't nullify marketing misrepresentation.

"The marketing pieces ... say the fund is appropriate for clients with an investment objective of capital preservation," Stoltmann said. "And there are representations made about the conservative credit nature of the holdings. And in reality, nothing could have been further from the truth.

"There were really risky speculative derivatives in these funds. And the true risks weren't made known."



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