Three years after the Financial Industry Regulatory Authority awarded former Chicago Bulls forward Horace Grant a $1.46 million arbitration award in his securities claim against Morgan Keegan & Co., the U.S. Court of Appeals for the Ninth Circuit has upheld that ruling. Grant, who had suffered mortgage-backed bond losses, accused the brokerage firm of not disclosing to him that his investments were not suitable for him, withholding information about the actual risks involved, and failing to supervise the fund manager. Morgan Keegan is now part of Raymond James Financial Inc. (RJF).
Grant bought the majority of the funds through his account with Morgan Keegan in 2004 when the brokerage firm owned the sports agency that represented him. The mortgage-backed bond funds were among a group of investment products that took huge losses in value in 2007 and 2008 when the subprime market failed.
Hundreds of investors proceeded to file similar mortgage-backed bond losses claims against Morgan Keegan, which finally agreed to settle with regulators for $200 million the allegations that it had inflated the value of the high-risk subprime securities that the funds held. James Kelsoe, a fund manager who is accused of purposely inflating the subprime securities’ value, would later to agree to an industry bar by the SEC and consent to pay a $500,000 penalty.
After Grant filed and then later won his FINRA arbitration case against Morgan Keegan, the broker-dealer immediately sought to have the ruling dismissed. It lost in the U.S. District Court for the Central District of California and appealed again and now has lost again.
A number of judges have question Morgan Keegan’s legal strategy, which seems to involve requiring investors to resolve disputes against it in arbitration but then going to the courts to try to have the arbitration rulings that aren’t in its favor thrown out. FINRA Arbitration Attorney William Shepherd has this to say:
By federal law, any participant in private arbitration has the right to seek to vacate an arbitration award, but on very limited grounds. Yet, the rules of the Financial Industry Regulatory Authority (FINRA) do not allow appeals of arbitrators decisions. Thus, FINRA has the power to sanction Morgan Keegan, or any other member firm, if that firm seeks to appeal arbitration awards by disguising such appeals as motions to vacate. Moreover, as part of its fine and sanctions, the SEC could have required Morgan Keegan to simply pay these victims their losses, with simplified arbitration claims only to determine the amount of the losses. Twenty years ago, the SEC did exactly that to Prudential Securities, based on that firm’s fraudulent partnerships. The problem is that these days the securities regulators, both FINRA and the SEC, are simply too chummy with Wall Street to actually protect investors.”
Meantime, Grant and Morgan Keegan are still involved in a separate $3 million arbitration claim that the ex-NBA star filed in 2010. His legal team is contending that Morgan Keegan’s ongoing legal efforts have left him with no choice but to cash in his NBA pension. Morgan Stanley filed a lawsuit arguing that the case should be resolved not in arbitration but through the court system.
Court Upholds Ex-NBA Star’s Win vs. Morgan Keegan, The Wall Street Journal, October 25, 2012
Ex-NBA star says fight with brokerage worse than facing Shaq, Reuters, October 15, 2012
More Blog Posts:
Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management, SSEK Blog, October 29, 2012
If SEC JOBS Act Rule 506 Proposal is Made Final, Legal Challenges Are Likely, Institutional Investor Securities Blog, October 27, 2012