February 20, 2012
Investor Wins: Broker-Dealer Arbitration Panel Finds Morgan Keegan Liable for Damages from Auction Rate Securities Sale
Saber Partners Sees Auction Rate Security Litigation Grinding On
(Birmingham, AL February 20, 2012) A Financial Industry Regulatory Association (FINRA) arbitration panel unanimously ruled that Morgan Keegan must pay damages of the full face value of a customer’s investment in auction rate securities (ARS). The investor purchased Jefferson County, Alabama sewer bonds through a firm subsequently acquired by Morgan Keegan. The ARS essentially lost a substantial amount of their value following a series of liquidity and credit events affecting the bonds.
The panel released its decision on Friday, February 17, 2012, in the matter of William W. Featheringill vs. Morgan Keegan & Company, Inc. (Case 10-01746). Among other securities and common law claims, the investor asserted that Morgan Keegan breached its “suitability” and other obligations under FINRA rules. In addition, he claimed the firm made material misstatements and omissions relating to his purchase and continuing investment in the securities.
“The principal amount at issue in this case may seem relatively small, but the securities principles involved were large. They go to governing the fundamental relationship between broker-dealers and their clients,” said Joseph S. Fichera CEO of Saber Partners, LLC and a Visiting Lecturer at Princeton University who served as an expert witness and advisor for the claimant. Haskell Slaughter Young & Rediker, LLC, Birmingham, Alabama, were counsel for the claimant. “While each case is fact specific, the sheer number and variety of ARS cases, even four years after the market dislocation, suggests there were fundamental problems in this market,” he continued. “Hopefully, the industry and investors will resolve this without continued litigation.”
Problems with the ARS market affected issuers, taxpayers, customers and investors nationwide – from the Metropolitan Museum of Art in New York, to the Statehouse in Sacramento; from Harvard University in Cambridge, to the Jefferson County sewer system in Alabama, to a hospital in Cleveland and so on. From their start as financial innovation, the ARS market grew to an estimated $330 billion market, before severe problems in 2008 halted new issuance and rendered many ARS investments illiquid. “With billions of dollars of ARS still outstanding and new controversies coming arising, the final chapter of this saga has yet to be written,” Fichera said.
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