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Morgan Keegan Loses In Indiana FINRA Arbitration Award

In a page out of David and Goliath, a church secretary from Whitestown, Indiana, emerged victorious in her FINRA arbitration claim that investment firm Morgan Keegan failed to disclose the risks of a certain bond fund that was heavily invested toxic collateralized debt obligations (CDOs) and other asset-backed securities. Ultimately, fallout from the collapse of the subprime mortgage market caused the fund to plummet in value.

As reported in a March 19 story in the Indianapolis Star, Jo L. Wright was awarded $18,000 on March 12 by a Financial Industry Regulatory Authority (FINRA) panel for her losses in the Morgan Keegan Select Intermediate Bond Fund.

Wright initially got into the Morgan Keegan fund because of a recommendation from her local Indiana Regions bank branch manager. Before moving her money, Wright’s investments had been in a certificate of deposit (CD) and a savings account.

When she transferred her money into the Morgan Keegan Select Intermediate Bond, she says the fund was described as a “safe, conservative but higher-yielding investment.”

According to the Wright’s complaint with FINRA, representatives of Morgan Keegan never told her about the risks of the fund nor did they reveal the high concentration of asset-backed securities that it contained. Because she never received a prospectus about the fund, she had no way to determine its asset make-up or the risks it presented.

Memphis based Morgan Keegan continues to be the subject of ongoing investor complaints and investigations for its management of a group of open end and closed end bond funds that collapsed in value because of their massive investments in risky asset-backed securities.  So far, investors have sustained more than $2 billion in losses from the funds.

Wright, who lost $11,000 in the Morgan Keegan Select Intermediate Bond, is the first Indiana case to go to an arbitration hearing over the Morgan Keegan bond funds, said her lawyer, Mark E. Maddox of Maddox Hargett & Caruso, in the Indianapolis Star article.

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