Judge Gives Morgan Keegan a ‘Free Pass’ on Auction Rate Securities Claims


A U.S. district court judge granted Morgan Keegan’s motion for summary judgment, dismissing the Securities and Exchange Commission allegations that the brokerage firm misled investors in connection with its sales of $2.2 billion in auction-rate securities, according to an InvestmentNews article entitled “SEC claim that Morgan Keegan misled ARS investors is nixed,” and David Benoit’s and Suzanne Barlyn’s Wall Street Journal article entitled “Morgan Keegan Judge: No Fraud.”

Federal and state regulators have sanctioned banks for falsely representing that auction rate securities are as safe, cash-like investments. Dozens of banks have returned billions of dollars to harmed investors, according to the article.

The SEC initiated an enforcement action against Morgan Keegan in July 2009, alleging it encouraged brokers to push auction rate securities before the $330 billion market froze in February 2008, and failed to disclose the growing liquidity risk.
The SEC presented testimony of four customers who were allegedly told that auction rate securities were “cash equivalents” and “completely liquid,” according to the article. In fact, auction rate securities were not “cash equivalents” or “completely liquid.”

But Judge William S. Duffey’s Opinion and Order stated: “The SEC is attempting to bootstrap the investor-specific impact of the misrepresentations alleged by four individual investors as a grounds to seek relief for a whole class of investors without any evidence that the other investors received similar oral misrepresentations.”

“The SEC has not introduced any evidence to show that Morgan Keegan instituted a companywide policy encouraging its brokers to misrepresent ARS liquidity risks,” U.S. District Judge William S. Duffey Jr. was quoted as saying, adding: The “failure to predict the market does not amount to securities fraud.”

Separately, last week, Morgan Keegan agreed to pay about $200 million to settle SEC charges that it published inaccurate asset values for subprime-mortgage backed securities and sold shares to investors based on inflated prices. Its parent company, Regions Financial, is reportedly trying to sell Morgan Keegan.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving auction rate securities. For further information, please contact us.