More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
A recent ruling by a judge overturning a $9.2 million award in Morgan Keegan’s favor isn’t likely to give parent company Regions Financial much upside as it looks to sell the brokerage firm, experts say. Furthermore, the anti-client nature of the decision could make Morgan Keegan look less desirable to potential purchasers, according to recruiter Rick Peterson of Rick Peterson & Associates in Houston.
Houston U.S. District Court Judge Lynn Hughes on Sept. 30 threw out a 2010 ruling by a Financial Industry Regulatory Authority arbitration panel that required Morgan Keegan to pay $9.2 million to a group of investors for losses tied to some of its troubled bond funds, Reuters reported Friday. The judge disputed the testimony of a key witness, but investors’ lawyers said they would appeal the decision.
“Yes, this may be a temporary or permanent victory for Morgan Keegan,” said Peterson in an interview with AdvisorOne. “But it also is likely to anger investors, brokers and others, in my opinion. And thus the value of the franchise deteriorates making it an enormous defeat.”
In June, after regulators announced a settlement of roughly $200 million with Morgan Keegan over civil-fraud charges brought by the SEC related to sales of subprime-mortgage securities, Regions hired Goldman Sachs to help it find a buyer for the brokerage firm.
“This [latest ] headline seems to convey the message ‘Morgan Keegan wins again over clients,’ and what kind of message is that for Morgan Keegan and its potential buyers?” asked Peterson. “Yes, they may save $9.2 million. But this is really about the overall situation and the fact that Morgan Keegan had to fight these lawsuits in the first place, I believe.”
Regions Financial declined to comment on the recent ruling and sale of the brokerage firm, and Morgan Keegan did not return a request for comment by press time. The broker-dealer includes about 1,200 advisors with a total of $80-plus billion in assets under management.
In Peterson’s view, the firm could have sat down with its investors and reached a settlement in more amicable ways. “Why not negotiate this and then let it go away?” he explained. “Instead, they chose to fight it. And this angers clients and brokers.”
Potential buyers of brokerage firms look at the wealth operations and goodwill, says Peterson. “And goodwill may keep deteriorating [through legal victories] as clients lose. And this could also mean that it deteriorates in value along with the espirit de corps, let alone the potential problem of keeping advisors. Clients affected by all of this are peppering their brokers to get the hell out of there.”
Other experts, though, say the ruling by the judge in Houston shouldn’t have much impact of the sale of Morgan Keegan. “I'd assume little impact on the sale process,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview.
And Patrick Burns (left), a Los Angeles-based attorney, says that it isn’t yet clear if Morgan Keegan will get the $9.2 million back in its pocket or if there will be further appeals. While it is a positive development in some respects, it may not have a big impact on the sale, unless the brokerage firm “gets rid of this case and possibly any related ones.”
While Peterson says that such arguments may have a point, “This whole thing been going on ad nauseam because Morgan Keegan has chosen to fight, in my mind. As the Street and clients look at it, it’s adding more insult to injury to not admit that they oversold certain products, or didn’t state the value of certain holdings or products correctly, etc. For clients, it seems likes its compounding the misery.”