After finding that Morgan Keegan, a unit of Regions Financial, failed to do sufficient due diligence on a hedge fund that was a feeder fund for Bernard L. Madoff Securities, a Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered the firm to pay a Florida couple more than $250,000.
Reuters reported that Morgan Keegan’s clients, Jeffrey and Marisel Lieberman, put the entire value of their account, $200,000, into the hedge fund, Greenwich Sentry LP. The fund filed for bankruptcy in November of 2010. The panel said that, according to Morgan Keegan’s own compliance rules, clients should never be invested in hedge funds unless they have listed “speculation” as one of their primary objectives. The Liebermans had listed that as their last investment objective. The panel also said that the firm had not done much due diligence, never requesting an audited report from Madoff’s firm or even searching the Internet for information about the fund.
The panel wrote, "There is clear and convincing evidence that … Morgan Keegan was grossly negligent in not performing substantial due diligence and as a result it fraudulently misrepresented the risk of this investment." It ordered the company to pay not only the full $200,000, but also 6% annual interest from the investment date in May of 2007, as well as $50,000 in punitive damages and $14,000 in expert witness fees.