VOL. 125 | NO. 131 | Thursday, July 8, 2010
Judge Sides With Morgan Keegan Investor
By Andy Meek
When a three-person arbitration panel affiliated with the Financial Industry Regulatory Authority decides how a dispute between an investor and a securities firm should be resolved, its ruling is almost never accompanied by an explanation.
That’s why a lawsuit Morgan Keegan filed in California over one such investor arbitration is noteworthy. The Memphis investment bank filed its lawsuit – which was decided a few days ago – partly over the very thought process behind a FINRA panel’s decision.
In the suit, Morgan Keegan appealed an almost $1.5 million arbitration award won against the firm by four-time NBA champ Horace Grant. The firm relied in part on a private conversation among arbitrators, who handed Grant his award in September.
Morgan Keegan said statements it transcribed and included with the suit showed bias against the company.
U.S. District Judge S. James Otero didn’t agree and threw out Morgan Keegan’s attempt to vacate the award. The federal judge concluded the company was “given a full and fair opportunity to present its case” in the arbitration setting.
“We believe that there was strong evidentiary support for this motion to vacate and are obviously disappointed with this decision,” a Morgan Keegan spokesman said. “At this point, we are still studying the court order to determine what our options are.”
Part of the flap centered around one point during a break in the arbitration hearing, when panel members were alone and went back and forth among themselves about the dynamics of the case. A recorder that captured the arbitration proceedings was apparently still running.
“The big guys on Wall Street designed these things and sold them like crazy,” Morgan Keegan recorded one of the arbitrators as saying to another during the break, seemingly about the kinds of funds in which Grant invested.
In a statement of claim, Grant said he suffered losses of almost $1.5 million in some of Morgan Keegan’s proprietary funds.
Nobody went near the riskiest pieces of securities in those funds, an arbitrator replied.
“Somebody had to – the long odds players,” came another response. “Yeah, not Mr. Grant.”
A flurry of dialogue then followed about where blame appeared to rest.
“Morgan Keegan was the lead underwriter for this crap,” one of the arbitrators declared. “Someone has to take responsibility for it. These funds were a sucker play.”
Another arbitrator replied, “Somebody has to take some responsibility for this, but it’s – it’s the guy who’s down on the street who’s … getting the responsibility stuck on his shoulders, not the guy who’s up on the 50th floor.”
“It was OK until – until the music stopped,” one arbitrator noted.
“Couldn’t get enough of them,” another replied.
“That’s why they kept – kept putting them together and selling the hell out of them,” another of the three arbitrators chimed in.
Morgan Keegan claimed those statements showed that “before hearing Morgan Keegan’s defense, the arbitrators had already made up their minds that Morgan Keegan should pay.”
The judge said Morgan Keegan didn’t prove the discussion was “anything more than banter between arbitrators during a break.”
Grant, who retired in 2004, was a power forward for the Chicago Bulls in the 1990s. He was playing for the Los Angeles Lakers when he retired.
His representative, Chicago securities lawyer Andrew Stoltmann, said Grant had wanted a stable place to park his money to provide him a steady income during his retirement.
“I wanted to be risk free,” Grant said during his four-day arbitration hearing. “I was retired, and I wasn’t going to get any more paychecks from the NBA, and I wanted to, you know, settle down and have a good life.”
The Regions Morgan Keegan mutual funds in which Grant invested were once high-flying products that lost most of their value starting in 2007 and landed Morgan Keegan in hot water with regulators.
The company’s attorney pointed to the historic credit and market “tsunami” that was “not foreseeable” and “not predictable” in defending the Memphis investment bank in the arbitration hearing.
In his closing statement during the arbitration Stoltmann urged the FINRA panel to “Hit them in this case. It’s the only language they understand.”