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Raymond James Financial Inc
Morgan Keegan & Co. was ordered to buy back some auction-rate securities and pay $110,500 in a case in which it was accused by the U.S. Securities and Exchange Commission of misleading customers about the risks of the investments.
U.S. District Judge William Duffey Jr. in Atlanta ruled yesterday that some of the company’s brokers negligently made misrepresentations and omitted important information when selling the securities. The judge said the brokerage didn’t act fraudulently, ruling against the SEC on part of its case.
“Brokers apparently were lulled into describing it too broadly and neglected in their discussions with the customers discussed in this order to discuss the practical and technical requirements of an auction and the consequences of an auction failure,” the judge said in his order, referring to the auction-rate securities market.
“As a result, the evidence in this case was that the Morgan Keegan brokers discussed in this order neglected to fully inform investors of the ARS risk when marketing the ARS product, to include informing them of the risk of auction failures, the concomitant loss of liquidity, and varying interest rates,” Duffey said.
The opinion followed a non-jury trial held in November in which the SEC tried to show that the company, now owned by Raymond James Financial Inc (RJF)., told clients that the more than $2 billion in securities it sold had “zero risk,” even as the market was collapsing in late 2007 and 2008.
The trial was held after a federal appeals court reversed a previous order in which Duffey dismissed the suit.
Before the SEC filed its lawsuit, Morgan Keegan voluntarily bought back about $2 billion in auction-rate securities from customers, it said in court filings. Duffey ordered that the company buy back some securities from some affected customers.
Jana Strange, a spokeswoman for St. Petersburg, Florida- based Raymond James, didn’t immediately return a call yesterday after regular business hours seeking comment on the ruling.
The case is Securities and Exchange Commission v. Morgan Keegan & Company Inc., 1:09-cv-01965, U.S. District Court, Northern District of Georgia (Atlanta).
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