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$11 Million in Two Months against Regions Morgan Keegan

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Memphis, TNAfter a couple of healthy arbitration awards in the fall of 2010 against Morgan Keegan with regard to the failed RMK funds, it will be interesting to see what will lay ahead in 2011 for this portfolio. Like all investments, a lot rides on having good information to begin with. In the case of Regions Morgan Keegan Funds, that may not have been the case for a lot of investors going in.

The mutual funds collapsed in the wake of the subprime mortgage debacle due to the fund's exposure to subprime and bonds and corporate junk bonds. A common complaint by investors who lost most, if not all of their money, in the collapse of the funds is that investors were never apprised of the true nature of the RMK funds and the risk involved—risk that may have been inappropriate for some investors.

In November, a panel of arbitrators with the Financial Industry Regulatory Authority (FINRA) awarded $1.8 million to a hotelier in Boca Raton after he incurred a substantial loss to the collapse of the funds.

According to the November 23, 2010 edition of the Commercial Appeal of Memphis, the panel found Memphis-based Morgan Keegan "liable for misrepresentations and omissions (common law fraud), breach of fiduciary duty, unsuitable investments, negligence, failure to supervise, breach of contract and vicarious liability."

One month prior, in October of last year, a FINRA panel awarded a group of investors in Houston a total of $9.2 million. Both judgments went against Morgan Keegan, which was serving as broker for the RMK funds—known by some as the "Kelsoe Funds."

The reference is to James C. Kelsoe Jr., who managed the funds. In the November FINRA case, Kelsoe allegedly admitted that the funds were indeed high-risk. However, it was not his responsibility to convey to potential investors the risk involved. That job, according to Kelsoe, should have fallen to Morgan Keegan.

It was reported that a former Morgan Keegan financial adviser testified at the November arbitration hearing that Kelsoe had told him the funds were relatively safe, an allegation Kelsoe denied. The broker further testified that he used the RMK funds as the conservative fixed-income component of his portfolio.

It was anything but.

Morgan Keegan indicated that it had won five out of seven claims stemming from the RMK high income fund in the month of November last year, with zero awards. The claims were dismissed. However, not everyone who launched a Regions Morgan Keegan lawsuit or arbitration claim lost out, as these two respective awards—combining to $11 million—can attest.


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