More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
The 11th Circuit of the U.S. Court of Appeals on Wednesday vacated the district court’s summary judgment against the Securities and Exchange Commission in a case involving Morgan Keegan’s handling of auction rate securities (ARS).
The SEC brought charges against Morgan Keegan in 2009, accusing the broker-dealer, then based in Tennessee, of misleading thousands of investors about the liquidity risks associated with ARS. The SEC at the time said that it was seeking a court order requiring Morgan Keegan, which has since been purchased by Raymond James, to repurchase the illiquid ARS from its customers.
At the time, the SEC alleged that Morgan Keegan misrepresented to customers that the securities were safe, highly liquid investments that were comparable to money-market funds. Morgan Keegan sold about $925 million of ARS to its customers between Nov. 1, 2007, and March 20, 2008, but the SEC says the BD “failed to inform its customers about increased liquidity risks for ARS even after the firm decided to stop supporting the ARS market in February 2008.”
The district court had ruled that oral misrepresentations Morgan Keegan brokers made to individual customers regarding the liquidity of ARS were immaterial as a matter of law because Morgan Keegan had disclosed those risks in written documents, even though the customers were not given or otherwise made aware of those documents.
In vacating the summary judgment, the 11th Circuit rejected the district court’s conclusion that the SEC, to sue a firm, “must show an institutional effort to mislead rather than acts by individual brokers.” The 11th Circuit also held that materiality was a question of fact in this case, opining, “the oral misstatements must be considered in the factual context of a weak, or non-existent, distribution of written disclosures.”