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.

Morgan Keegan can't have it both ways, Stoltmann said.

"You don't get a rely-on-the-prospectus defense when you have advertising and marketing materials portraying these things as safe and secure. It really was a classic bait-and-switch," he said.

Stoltmann further argued that the prospectus only provides "general, boilerplate disclosures" that don't detail the risk specific to those funds, which he said is required for the prospectus to be a legal defense.

"Obviously we disagree," Ridley said. "And we believe the prospectus did clearly disclose this information."


Changing Disclosures

Stoltmann said the RMK funds were far more exposed to asset-backed and mortgage-backed securities than competing high-income funds. About 40 percent of the Morgan Keegan funds were invested in asset-backed securities - instruments backed by auto, home equity or student loans and the like - while another 30 percent was invested in mortgage-backed securities, Stoltmann said.

Meanwhile, peer funds generally had only about 3 percent in mortgage-backed and asset-backed securities combined.

Ledbetter agreed.

"The way [these funds] were structured, quite frankly, it was almost inevitable in any sort of a liquidity or credit adjustment that they would go belly up," Ledbetter said. "And they did."

Attorneys say the marketing materials given to investors weren't the only place the nature of the funds was misrepresented.

"For example, in a September 30, 2006 Annual Report, Morgan Keegan stated that 'Bond funds tend to experience smaller fluctuations in value than stock funds,'" Sonn & Erez PLC, a Fort Lauderdale, Fla., law firm, said in a press release regarding the FINRA claim it filed on behalf of Dr. Louis Velez.



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