D&G Law

Morgan Keegan Ordered to Buy Back Auction-Rate Securities

Donaldson & Guin, LLC - securities fraud litigation blogAlthough the SEC did not prevail on its fraud-based claims against Morgan Keegan regarding its retail sales of auction-rate securities (“ARS”),  a federal district court in Atlanta did conclude that “[b]rokers apparently were lulled into describing [their ARS] too broadly and neglected in their discussions with the customers … to discuss the practical and technical requirements of an auction and the consequences of an acution failure…..  As a result, the evidence in this case was that the Morgan Keegan brokers … neglected to fully inform investors of the ARS risk when marketing the ARS production, to include informing them of the risk of auction failures, the concomitant loss of liquidity, and varying interest rates.”

The court’s opinion followed a non-jury trial in November 2012 in which the SEC put on evidence that Morgan Keegal told client that the more than $2 bilion in ARS it sold to its clients had “zero risk,” even as the ARS market was collapsing in 2007 and 2008.

The case is SEC v. Morgan Keegan & Co., Inc., 1:09-cv-01965 (N.D. Ga.).