By Suzanne Barlyn
Oct 23 (Reuters) – A federal appeals court on Tuesday
reinstated a $9.2 million securities arbitration ruling against
Morgan Keegan & Co stemming from a group of bond funds that
became the subject of a civil fraud action by regulators.
The U.S. Court of Appeals for the 5th circuit ruled that a
district court’s decision to throw out the arbitration award was
made in error, according to an opinion released Tuesday.
U.S. District Court Lynn Hughes in Houston ruled in
September, 2011, that the arbitration ruling should be thrown
out because, in part, it was obtained through the alleged
“fraudulent” testimony of Craig McCann, a prominent expert
witness and former U.S. Securities and Exchange Commission
economist.
But the federal appeals panel noted that there was a “total
absence of any evidence” to support that finding. The evidence
“supports nothing more than a conclusion that a member of Dr.
McCann’s staff made a calculation error that he did not discover
until after he testified,” the court wrote.
Investors filed more than 1,000 arbitration cases for losses
stemming from the troubled bond funds, which lost as much as
80-percent of their value in 2008. Morgan Keegan agreed to a
$200 million civil fine to resolve the SEC’s enforcement action
against the brokerage.
The $9.2 million arbitration ruling was the largest to date
against Morgan Keegan in the bond fund cases. The brokerage has
been aggressively defending the claims, including going to court
in efforts to overturn certain arbitration rulings.
Earlier in October, lawyers for Morgan Keegan argued in a
California appeals court that an award to former NBA all star
Horace Grant, who arbitrators awarded $1.46 million over the
same bond funds, should be overturned because of arbitrator
bias, among other things.
A lawyer for the investors in the $9.2 million award case
could not be immediately reached for comment.
A spokesman for Raymond James Financial Inc, which
acquired Morgan Keegan from Regions Financial Corp,
declined to comment. A spokesman for Regions Financial Corp,
which retained financial responsibility for the bond fund cases,
also declined to comment. A Morgan Keegan spokeswoman could not
be immediately reached.
