The Texas Court of Appeals for the Fifth District has upheld a $2.1M judgment for a client of Houston Securities Fraud Attorney Sam Edwards of Shepherd Smith Edwards & Kantas. The ruling ordered Morgan Keegan to pay $2.1M for not telling investors about the actual risks involved in a mortgage-backed securities stake.
It was in October 2014 that a Dallas state court judge determined that the wealth management and capital markets firm had violated the Texas Securities Act by not accurately representing the risks involved in securities in which Purdue Avenue Investors LP and its principals Dana and Robert Howard had invested. These were MBS purchased by bond funds that Morgan Keegan underwrote and Morgan Asset Management managed. The purportedly undisclosed risk was that the funds were heavily involved in lower than investment grade structured finance.
The Howards invested more than $2M in the RMK Strategic Income Fund and the RMK Advantage Income Fund. The funds would go on to lose more than $2B.
Following the judge’s 2014 ruling in the Howards’ MBS fraud case, Morgan Keegan, which is now owned by Raymond James (RJF), and ex-affiliate Morgan Asset appealed to the Texas appeals court. They contended that the trial court decided wrongly because of a finding that the defendants, as issuers of the securities, were liable under the Texas Securities Act, in addition to the finding of secondary liability as abettors and aiders.
However, a three-judge panel for Texas appeals court is now saying that the evidence presented at trial was enough to support a primary liability finding under the Texas Securities Act, in addition to a secondary liability one. The panel, however, said that the trial court was wrong in ruling that the Morgan entities were liable as issuers. Still, said the panel, the trial court’s ruling favoring the Howards was correct despite the mistake in legal theory. The judge also said that the plaintiffs’ claims were not barred under the statute of limitation, as the Morgan entities had argued.
They claimed that the Howards knew or should have known by no later than 2004 about the alleged misrepresentations yet waited until 2009, which is long after the three-year state of limitations, to bring their case. The entities also said that the risk the plaintiffs claim they didn’t know was disclosed in a report in 2004.
Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.