Morgan Keegan Heads Back To State Court
A Morgan Keegan lawsuit involving 26 Alabama residents who allege the Memphis-based firm misled them about the risks of several collapsed RMK bond funds that invested in mortgage-backed securities is headed back to state court. The story was first reported Nov. 13 by Law360.
The investors initially filed their lawsuit in August, naming Morgan Keegan - a subsidiary of Regions Financial Corp. - and two of the brokerage’s financial advisers as defendants. The investors in the case are seeking $1 million in restitution, as well as some $3 million in punitive damages.
Morgan Keegan apparently opposed the move back to state court, according to the Law360 article, claiming the plaintiffs had relied on “legal gymnastics” to avoid referencing substantial issues of federal law - including the federally regulated mutual funds at the heart of the dispute - in their complaint.
Judge Myron H. Thompson of the U.S. District Court for the Middle District of Alabama disagreed with Morgan Keegan’s arguments and granted the plaintiffs’ motion to remand the suit last week.
The plaintiffs in the Alabama case are in the same boat as many investors who once placed their money in certain Morgan Keegan bond funds based on assurances that the bonds were safe and diversified investments. Instead, the funds were over-concentrated in risky mortgage-backed securities. In the summer of 2007, when the housing market began its downward spiral, several of the RMK bonds suffered a massive meltdown.
As reported earlier this summer by the Birmingham Business Journal, investors in the RMK funds cried foul, contending the “safe” investments that Morgan Keegan had sold them essentially were now worthless. Hundreds of arbitration claims against Morgan Keegan soon followed, along with several class-action lawsuits.
Morgan Keegan’s bonds were fat with some of the “worst pieces of structured finance deals,” on the market, said securities expert Craig McCann of Virginia-based Securities Litigation & Consulting Group in the May 1 Birmingham Business Journal article.
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