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.

"However, by September 20, 2007, Morgan Keegan revised its statements to read, 'Investors in any bond fund should anticipate fluctuations in price,' and removed its prior statement that stated that bond funds experience smaller fluctuations than stock funds. Morgan Keegan by its very own actions admits that its pre-September 2007 disclosures were inaccurate and misled investors and its own stockbrokers."

(Exactly when each of the disgruntled investors bought into the RMK funds is not a matter of public record, but it was presumably before the summer of 2007, by which time the values had plummeted.)

Ridley, of Morgan Keegan, responded: "That change in disclosure was simply reflecting the change in the market circumstances, changes that were occurring in the market. Historically, bond funds have been less volatile than stock funds."

Stoltmann said that Morgan Keegan reclassified some securities after the funds sustained major losses.

"We can now establish without any question, without any doubt, that Morgan Keegan was misclassifying securities as either preferred stocks or corporate bonds when in fact they were below-investment-grade derivatives," Stoltmann said.

"After the funds had lost 75 percent of their value in March of '08, Morgan Keegan goes back and reclassifies 10 to 15 percent of the same securities that last year they were saying were preferred stocks or corporate bonds. And after a 75 percent drop, they reclassify them as below investment-grade derivatives with huge losses in these securities," Stoltmann added.

Ridley responded: "There's no universally accepted classifications, so, yes, there could have been some changes in the way they were classified."

Ridley said she was not aware of any securities in the RMK funds being reclassified as derivatives.

Morgan Keegan has yet to relent on any case and doesn't intend to do so, according to a statement in a press release.

"Overall results [of arbitrations] support our belief that there were no improprieties in the management of these Funds. We plan to continue a vigorous defense of all claims," Niel Prosser, deputy general counsel for Morgan Keegan, said in a news release.

So far, Stoltmann said, between 300 and 400 cases have been filed in connection with the funds. However, he expects another 100 to 150 to be filed. And more are likely to come from Arkansans.

"Other than Alabama and Tennessee, I would say the third most populous state in terms of people financially devastated by these funds is Arkansas," Stoltmann said.

 

 

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