Securities Law Blog

SEC Urges an End to Mandatory Arbitrations

Thu, 02 May 2013 12:02:18 -0600

Armed with an argument for protecting investors' rights, SEC member Luis Aguilar went before the North America Securities Administrators Association's annual conference in Washington, D.C to argue that mandatory arbitration agreements should not be allowed, according to a recent Reuters.com article. Aguilar feels that the investor should be able to choose the forum in which they want to bring their legal claims.

These are the first really outspoken comments by Aguilar since the enactment of the 2010 Dodd-Frank Wall Street reform law, provided the SEC with new powers to raise investor protections, including the authority to scale back or completely prohibit pre-dispute arbitration agreements.

Arguments made by those who want to continue with mandatory arbitration agreements include the reduction of costs and prevention of frivolous litigation, according to the Reuters.com article.

As of yet, the SEC has not taken action on Aguilar's proposal. Aguilar is one of five voting commissioners but the article pointed out that his views on some issues have diverged from those of some of his peers on the commission.

SEC Finally Releases Morgan Keegan Fund Distribution

Thu, 11 Apr 2013 12:00:31 -0600

A recent press by the Secretary of State for the State of Mississippi announced that the SEC has published their proposed plan for fund distribution to those injured by Morgan Keegan investments.

This comes two years after the $200 million dollar settlement with Morgan Keegan and Morgan Asset Management. The settlement funds are to be used as payments to investors who were damaged by Morgan Keegan and Morgan Asset Management's failure to "disclose risks associated with certain investments and presenting misleading marketing materials to investors", according to the Secretary of State's press release.
The settlement was to be paid originally in two parts, with the States involved in the suit distributing $100 million to injured investors and the SEC distributing the other $100 million. The States have already distributed their portion and have been waiting on the SEC, according to the press release.

Secretary Hosemann stated in his press release that, "by their own administrative rule, the SEC is required to have a distribution plan in place within 60 days of the Commission receiving funds. It has been two years". After repeated demands by the Secretary of the State, three investors filed a lawsuit against the SEC to demand payment; the Attorney General demanded action from the SEC within 14 days of the demand, the press release stated.

The SEC announced the proposed distribution plan early this April; a copy of the plan can be found http://www.sec.gov/litigation/fairfundlist.htm#morganassetmgmt.

FINRA Bars Broker for Unsuitable and Unapproved Securities Transactions Involving 31 NFL Players

Tue, 02 Apr 2013 15:40:51 -0600

According to a FINRA press release, broker Jeffrey Rubin of Lighthouse Point, Florida, is barred from the securities industry for making unsuitable recommendations to invest in illiquid, high-risk securities issued in connection with a now-bankrupt casino in Alabama. Mr. Rubin was barred after after an investigation spearheaded by FINRA's Departments of Enforcement and Member Regulation.

Mr. Rubin, while a registered broker at Lincoln Financial Advisors Corporation and Alterna Capital Corporation, also operated a Florida-based company, Pro Sports Financial. Pro Sports Financial provided financial-related "concierge" services to professional athletes for an annual fee. Rubin recommended that one of his NFL clients invest thr majority of his liquid net worth, approximately $3.5 million, in four high-risk securities. Without informing his employer member firm and without their approval, Rubin recommended and facilitated his client investing $2 million in the now failed Alabama casino project.

Mr. Rubin referred other investors to the casino project while employed by Alterna Capital Corporation and International Assets Advisory, LLC without the firms' knowledge or approval. FINRA found that from approximately January 2008 through March 2011, 30 additional NFL player clients of Mr. Rubin's concierge firm, Pro Sports Financial, invested approximately $40 million in the casino project. These investments provided Mr. Rubin with a 4 percent ownership stake in the defunct casino and $500,000 from the project promoter for these referrals.

FINRA's Executive Vice President and Chief of Enforcement, Brad Bennett, said, "This case demonstrates how broker misconduct can target high-income, inexperienced, and vulnerable investors. Jeffrey Rubin took advantage of professional athletes who placed their trust in him." In settling this matter, Rubin neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Burke, Harvey & Frankowski, LLC Announces Investigation of Saba Software, Inc.

Wed, 13 Mar 2013 13:57:07 -0600

Saba Software, Saba, a provider of cloud computing software used for training and conferencing, recently announced that it received a letter from NASDAQ indicating the Company's ongoing failure to comply with NASDAQ's listing requirements. The failure to comply is related to the Company's failure to timely file certain financial statements with the SEC. The Company previously announced that it will be restating previously issued financial statements for fiscal years 2008, 2009, 2010, and 2011, and is reviewing the Company's unaudited financial statements for the three months ended August 31, 2012 and the six months ended November 12, 2012. The Company also announced that its public accounting firm will resign upon the completion of the audit and restatements.

On March 1, 2013, the Company announced that its founder, director and CEO Bobby Yazdani was stepping down from all of those positions effective immediately. Burke Harvey & Frankowski is investigating whether the directors and officers of Saba Software breached their fiduciary duties owed to the Company and its shareholders in connection with the above and caused the Company damages.

Raymond James Drops Morgan Keegan's Name After It Was Ordered to Buy Back Securities

Fri, 01 Mar 2013 13:50:52 -0600

Just a few weeks after the 11th Circuit Court ordered Morgan Keegan to buy back more of their ultra-risky auction rate securities, Raymond James dropped the name Morgan Keegan altogether. In November 2012, this blog reported that 11th Circuit Judge William Duffy dismissed an SEC claim against Morgan Keegan. According to the article underlining the blog post, District Judge Duffy dismissed the SEC claims, ruling that the brokers' misleading statements were not material and that the brokers could not predict the market. However, the Court of Appeals disagreed with Judge Duffy and remanded the case back to the judge for a non-jury trial.

The Bloomberg.com article discussed Judge Duffy's opinion, which said that the brokerage firm did not act fraudulently but some of its brokers negligently made misrepresentations and omitted important information about the securities sold. Though Morgan Keegan voluntarily bought back around $2 billion of the highly-risky auction rate securities, according to the article, Judge Duffy ordered still more of the risky securities to be purchased back from the investors adversely affected by the high-risk funds and the misrepresentations surrounding them. Morgan Keegan was also ordered to pay a fine of over $100,000 per the Bloomberg.com article.

This decision came just a month before Raymond James Financial announced plans to drop Morgan Keegan from the name of its fixed-income arm. The onwallstreet.com article quoted Raymond James CEO Paul Reilly as saying that the two companies have reached a "cultural integration." The article also quoted Mr. Reilly as saying that Morgan Keegan was the one that requested their name be dropped.

Class Action Complaint Filed Against Fidelity

Thu, 21 Feb 2013 09:58:22 -0600

A putative Class Action Complaint was filed in the United States District Court for the District of Massachusetts for Timothy Kelley (an ex-participant in the Avanade and Hewlett-Packard 401(k) plans) and Jamie Fine (a participant in the Delta 401(k) plan) accusing Fidelity of fiduciary breaches over its handling of floating participant contributions . Class action status is being sought on behalf of all Fidelity 401(k) participants, not just participants in the Avanade, Delta and HP plans.

The Complaint alleges that Fidelity 401(k) participants' contributions are held in temporary cash accounts before being invested in mutual funds and the like. These contributions are then held in the cash account, earning interest. The Complaint alleges Fidelity takes all of that interest and first pays itself. Then, the Complaint argues, Fidelity will take the rest of that interest and put it in the mutual fund which is spread out over investors. The Complaint focuses on this practice that affected all 401(k) plans for which Fidelity does recordkeeping.

This is not the first time Fidelity has been sued over retirement or investments accounts. According to a NY Times Article, employees of ABB, Inc. sued ABB and Fidelity for charging excessive retirement management fees. The judge in the case ruled that ABB breached its fiduciary duty to its own employees. The court also held that Fidelity breached its fiduciary duty to ABB's retirement plan by failing to allocate properly interest earned from the overnight investment of plan funds. The court originally ordered ABB to pay $35.2 million in damages and Fidelity to pay $1.7 million, according to the article, but later ordered ABB and Fidelity to pay $13.4 million more in attorney fees and costs. The article quoted from the Judge's opinion that "ABB breached its fiduciary duties of both loyalty and prudence to the retirement plans, as a result of which it benefited significantly while plan beneficiaries were deprived of millions of dollars. Fidelity, while less culpable, also took plan assets in violation of its fiduciary duty."

The Plaintiffs' attorneys are: Richard Frankowski with Burke Harvey & Frankowski in Birmingham, Alabama; Joseph Peiffer of Fishman Haygood Phelps Walmsley Willis & Swanson in New Orleans; Todd Schneider and Mark Johnson in San Fransico, and Garrett Wotkyns and Michael McKay in Scottsdale, Arizona, all four of whom are with Schneider Wallace Cottrell Brayton Konekcy; James Kaufman of Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor in Pensavola, Florida; Elizabeth Ryan and John Roddy with Bailey in Boston; and Suyash Agrawal and Jeannie Evans with Agrawal Evans in Chicago.

Judge Accused of Exceeding Authority by Rejecting SEC Settlement

Wed, 13 Feb 2013 10:18:12 -0600

Trial Court Judge Jed Rakoff is accused of exceeding his authority in rejecting a settlement reached by the SEC and Citigroup. The settlement came after the SEC initiated a civil fraud action against Citigroup regarding the sale of a complex $1 billion mortgage bond deal during the end of the housing boom. The SEC also alleged Citigroup deceived its customers by selling them risky mortgages that the bank allegedly knew would decline in value. The clients involved suffered more than $600 million in losses.

Citigroup agreed to pay $285 million to settle the complaint, but Judge Rakoff rejected the settlement. According to the NY Times Dealbook article, Judge Rakoff called the proposed settlement amount "pocket change" for the bank. The Judge also wrote in his opinion, according to the article, that the settlement did not require Citigroup to admit to or the SEC to prove fraud, which deprived the public "of ever knowing the truth in a matter of obvious public importance."

Judge Rakoff did not attend the proceedings at the United States Court of Appeals for the Second Circuit in Manhattan. His court-appointed lawyer did attend the argument in front of the three judge panel, regarding his authority to reject the SEC/Citigroup settlement. According to the article, John R. Wing, the lawyer for Judge Rakoff, argued that a judge is not bound to approve every consent decree from the SEC while only assuming the decree is in the public's interest. Judge Rakoff wanted additional evidence to ensure his judgment was well informed.

Many governmental bodies use the "neither admit nor deny wrongdoing" language in settlement with corporate defendants. A worry addressed in the article is that if the Second Court of Appeals agrees with the Judge, than other judges would refuse to approve settlements with that language. Also, having to admit fault could be quite the deterrent to corporate defendants choosing to settle and more cases will go on to a costly trial. The NY Times Dealbook article quotes Brad S. Karp, a lawyer for Citigroup, as saying that, "Many corporations will decide to not settle matters if a requirement is to admit liability," Mr. Karp said. "The federal regulatory enforcement regime would screech to a grinding halt."

Judge Rakoff's lawyers argued in response that, "The S.E.C.'s and Citigroup's concept of deference -- in which courts would be effectively reduced to potted plants -- would surely undermine the independence of the federal judiciary." The Courts need not approve every settlement that comes their way just because it was offered by a federal agency. Citigroup and the SEC argued that requiring an admission of fault would lead to more costly trials. However, approving all settlements without an indication of fault may be better for the defendant but their ease in settlement should not be favored over the public's interest.

This is not the first time Judge Rakoff has rejected an SEC settlement. The article acknowledges that the Judge has been a vocal critic of the SEC and their settlements which allow a company to settle fraud case by paying a fine without having to admit any wrongdoing. Such settlements must be approved by the court to be "fair, reasonable, adequate and in the public interest." Judge Rakoff, in 2009, rejected the SEC and Bank of America settlement related to the bank's acquisition of Merrill Lynch. Other federal judges in Brooklyn, Colorado and Wisconsin have followed suit and demanded greater information and/or accountability from defendants approving settlements with the S.E.C. and other government agencies.

Morgan Keegan Opt-Out

Thu, 07 Feb 2013 13:08:10 -0600

Notice to Morgan Keegan Customers Who Invested In the RMK Closed-End Bond Funds: The Law Firm of Burke Harvey & Frankowski, LLC Urges You to Fully Explore Your Legal Options Regarding the Proposed Class Action Settlement With Morgan Keegan

BIRMINGHAM, AL., Feb. 5, 2013 (GLOBE NEWSWIRE) -- The Law Firm of Burke, Harvey and Frankowski L.L.C. ("BHF Legal") (http://www.bhfsecuritieslaw.com) advises all Morgan Keegan customers who lost $10,000 or more in the RMK Closed-End Bond Funds and who have not already filed FINRA arbitrations to fully explore all of their legal options in connection with the settlement of In Re Regions Morgan Keegan Closed-End Fund Litigation ("Class Action"), Case No. 07- CV-02830. You have the right to opt out of this settlement on or before March 22, 2013. If you do not opt out, you will release valuable legal rights if the settlement is approved. We are ready to advise you on the opt-out process.

The proposed settlement will result in a few cents on the dollar for aggrieved investors if legal fees and costs of $19.15 million are approved. Many Morgan Keegan customers have done much better than this by filing individual arbitrations. In cases where damages are $50,000 or less, clients do not have to attend an arbitration hearing, and can simply submit a brief to support their claim.

The deadline for filing an objection or opting out of the class is March 22, 2013. If you do nothing by that date, you will be bound by the settlement if it is approved by the Court.
The RMK Closed-End Bond Funds involved in the settlement include the RMK Advantage Income Fund (RMA) n/k/a Helios Advantage Income Fund (NYSE: HAV), RMK High Income Fund (RMH) n/k/a Helios High Income Fund (NYSE: HIH), RMK Multi-Sector High Income Fund (RHY) n/k/a Helios Multi-Sector High Income Fund (NYSE: HMH) and RMK Strategic Income Fund (RHY) n/k/a Helios Strategic Income Fund (NYSE: HSA).
The attorneys at Burke, Harvey & Frankowski, LLC have successfully represented Morgan Keegan customers in arbitrations throughout the country.
Current and former customers of Morgan Keegan are encouraged to contact Attorney Richard Frankowski at 888-930-9091 for a free consultation to explore their legal rights and options. You can email Mr. Frankowski at rfrankowski@bhflegal.com. Visit BHF on the web at http://www.bhfsecuritieslaw.com.

Burke Harvey & Frankowski, LLC has paid for the dissemination of this promotional communication and is responsible for its content. No representation is made that the quality of legal services to be performed is greater than the quality of legal services to be performed by other lawyers.

SEC Bars Egan-Jones from Issuing Certain Ratings

Thu, 24 Jan 2013 12:42:33 -0600

Smaller than Standard & Poor's or Moody's, Egan-Jones is based in Haverford, PA with principle Sean Egan at the helm. It differs not only in size from its competitors but also in its business model. Standard & Poor's and Moody's both are paid by the companies that they rate while Egan-Jones accepts payment only from the investors interested in the ratings. This seemingly less biased business model has not completely protected the ratings firm. The Securities and Exchange Commission (SEC) investigated the firm for a few years and filed charges against the company and its principle. According to a NY Times Dealbook article, Egan-Jones is barred from issuing certain government-recognized ratings for 18 months. The article stated that the trouble Egan-Jones found them in started when the firm made misstatements on an application with the government.

The SEC said the firm had exaggerated its record when it applied for a government designation in July 2008. The firm said then that it had performed 150 ratings of asset-backed securities and 50 ratings of governments, when it actually had performed none at that time, according to the agency. Egan-Jones had also violated provisions preventing conflicts of interest, because two analysts helped to rate entities whose securities they also owned, according to the SEC.

The ratings firm allegedly allowed two analysts to assist in rating entities comprised of securities they also owned. The SEC also alleged that the firm made misstatements when applying for a government designation. These misstatements were characterized in the article as the firm stating they had rated 150 asset-backed securities and 50 ratings of governments when at the time, it had not performed any of the 150 ratings it claimed.

Discussed in the article also were the terms of the penalty- the firm is still allowed to issue ratings but when rating asset-backed or government securities issuers, the firm will not be able call themselves a nationally recognized statistical rating organization. This ban will last for 18 months and Egan-Jones will be eligible to apply again for the designation once the ban ends.

Bank of America to Pay $10.3 Billion Over Questionable Mortgages

Mon, 14 Jan 2013 09:18:12 -0600

A recent CNN Money article disclosed a $10.3 billion settlement between Fannie Mae and Bank of America over questionable home loans sold during the housing bubble and subsequent burst. The article stated the large settlement would be comprised of a direct payment of $3.55 billion in cash as well as $6.75 billion paid to repurchase around 30,000 "questionable" mortgages. These mortgages were combined into mortgage backed securities, which were purchased and guaranteed by Fannie Mae and turned out to be very risky and unstable investments. It was these mortgage backed securities that helped bring down the government backed mortgagor, causing them massive losses and needing a $116 billion bailout to continue to operate.

According to the CNN Money article, the loans in question were originally made by Countrywide Financial between 2000 and 2008 and the original value of the loans covered in this settlement was $1.4 trillion. Bank of America purchased Countrywide in 2008 for $4 billion. This is not the first settlement that BofA has reached regarding Countrywide's mortgage or loan practices and their packaging of mortgage backed securities. BofA repurchased $2.87 billion in bad loans purchased by Fannie Mae and Freddie Mac. In 2011, BofA agred to pay a $335 million fine over Countrywide's alleged discriminatory lending practices.

The settlement between Fannie Mae and BofA was disclosed the same day that the Federal Reserve and Office of the Comptroller of the Currency reached a different agreement with BofA and nine other banks for a total of $8.5 billion regarding foreclosure abuse. The other banks in the foreclosure abuse settlement are Aurora, Citigroup, JPMorgan Chase, MetLife, PNC, SunTrust, US Bank, Wells Fargo and Sovereign Bank.

AIG Considering Suing Government Over Bailout

Mon, 07 Jan 2013 10:42:56 -0600

The Board of American International Group, Inc. (AIG) soon will meet to decide if the company, who just paid off their $182 billion bailout debt, will join a $25 billion shareholder lawsuit against the government, according to an article in the NY Times Dealbook.

The lawsuit in question was filed in 2011 by Maurice Greenberg, AIG's former chief executive for almost forty years. According to the article, Greenberg claimed the government deprived shareholders of tens of billions of dollars and violated the 5th Amendment when it bailed out the large insurance company. Greenberg filed suit against the government in the federal courts of New York and Washington. The New York case was dismissed and is on an expedited path for review at the Court of Appeals for the Second Circuit while the Washington Court declined to dismiss the case. The Washington Court is now waiting on AIG's decision.

Greenberg alleges that when the government bailed out AIG, which even he admittedly agreed the company needed, the government improperly used AIG funds to provide a "backdoor bailout" of Wall Street. He also claims, according to the NY Times Dealbook article, that the government violated the 5th Amendment prohibiting the government taking private property , i.e. AIG shareholder funds, for public use. Greenberg also claims the bailout plan took a "punitive" interest rate of 14 percent or more while also diluting the holdings of investors, according to the article . A spokesman for the Federal Reserve Bank of New York stated that the alternative to the bailout for AIG was to file bankruptcy. Potentially joining the litigation must be brought to the shareholders due to AIG's business responsibilities and the fiduciary duties AIG owes their shareholders. It would be improper for the board members to not consider the lawsuit at all, due to the duty they owe the shareholders.

On January 9, 2013, the board of directors will meet with Greenberg's current company, Starr International. Afterwards, the Treasury Department will make a presentation and then both parties will be allowed time for rebuttal. It is not known when the board will make a decision regarding joining the suit. The article states that while discussions were already scheduled for board meetings, it is rare for the entire board to meet over a question of joining a single litigation.

SEC Charges Penny Stock Investors with Fraud

Fri, 21 Dec 2012 10:19:15 -0600

Four industry professionals were charged by the SEC for a fraudulent penny stock scheme that produced around $17 million in illegitimate profits, all the while claiming false federal securities laws exceptions. The SEC defines penny stocks as low-priced (below $5), speculative securities of small companies that are generally quoted over the counter on the OTC Bulletin Board or in the Pink Sheets but may also be traded on the securities exchange.

The SEC press release alleged the four industry professionals acquired somewhere between 30 to 60 percent of the market price, more than one billion unregistered shares, in microcap companies at very deep discounts. Microcap companies are those smaller, public companies with a market capitalization under $250 million. The press release further alleges the four professionals charged told the companies they intended to hold the shares for investment purposes yet instead they quickly sold the shares unregistered. The SEC asserts that they did so claiming to rely on certain state law exceptions that would permit such a sell. The SEC further contends the four charged set up virtual corporations in numerous states to feign the appearance that the exception was valid.

The Director of the SEC's New York Regional Office stated that the four charged allegedly, "repeatedly violated the registration provisions and in the process also committed securities fraud." The penny stock scheme is said to have started in 2007 and went until 2010. The four charged had previously worked in the securities industry as registered representatives, providers of investment management or provided financial advisory services.

FTC ACTION RESULTS IN $24 MILLION SETTLEMENT

Wed, 12 Dec 2012 09:46:32 -0600

Harry Tanner with American Precious Metals, Andrea Tanner and Sam J. Goldman agreed to pay a $24 million settlement after FTC charged they tricked customers to purchase high risk precious metals on credit without disclosing the risks associated with these purchases, according to the Federal Trade Commission's article. This settlement stems from an FTC investigation that started in May, 2011.

The FTC complaint alleged that consumers were unaware that their investments were financed and loans were taken out for up to 80% of the price of the precious metals. The persons who invested in these precious metals were also unaware that their investments were subject to equity calls; to prevent their investments from being liquidated, they might have to pay more money.

While the investigation and litigation has progressed, the court barred the defendants from misrepresenting the risk and earning potential of their investment offers and required clear disclosure of all the total costs and risks before consumers agreed to invest, pending resolution of the case.

In addition to the settlement, Mr. Tanner and Mr. Goldman are also permanently banned from marketing any investment opportunities. Mrs. Tanner is banned from marketing precious metals investments. In addition, all three of them must fully and honestly disclose all material terms about any goods or services they offer consumers in the future and they cannot disclose or benefit from their future customers' personal information.

Burke Harvey & Frankowski LLC Announces Investigation of Vascular Solutions Inc.

Tue, 04 Dec 2012 11:20:00 -0600

Burke, Harvey & Frankowski, LLC ("BHF") announces the commencement of an investigation into Vascular Solutions Inc., ("Vascular Solutions" or the "Company") to determine whether the Company's officers and directors have breached their fiduciary duties owed to Vascular Solutions and its shareholders by causing the Company to illegally market certain of its medical devices for unapproved, or "off-label," uses.

Founded in 1996 and based in Minneapolis, Minnesota, Vascular Solutions is a biopharmaceutical company that markets and sells the products for interventional cardiologists and interventional radiologists. Vascular Solutions offers products and services in three categories: catheter products, hemostat products and vein products and services. Catheter products consist of catheters used in minimally invasive medical procedures for the diagnosis or treatment of vascular conditions. Hemostat products consist of products used to control surface bleeding. The Company's vein products consist of Vari-Lase endovenous devices.

On November 19, 2010, a former Vascular Solutions employee filed under seal a qui tam action against the Company alleging Vascular Solutions illegally marketed its Vari-Lase endovenous laser product to treat conditions other than those approved by the Food and Drug Administration and engaged in an illegal kickback scheme with doctors who prescribed the device for off-label use, in violation of federal law. The complaint also alleges that Vascular Solution's off-marketing scheme resulted in over $20 million in improper Medicare and Medicaid reimbursements.

Soon thereafter, on June 28, 2011, Vascular Solutions announced that it had received a subpoena from the U.S. Attorney's Office for the Western District of Texas under the Health Insurance Portability & Accountability Act of 1996 requesting the production of documents related to the Company's Vari-Lase products. The government later elected to intervene in the qui tam action.

What You Can Do

If you are a long term Vascular Solutions shareholder, you may have legal claims against Vascular Solutions' officers and directors. If you wish to discuss this investigation, or have questions about this notice or your legal rights, please contact attorney Richard Frankowski via email at rfrankowski@bhlegal.com or via toll-free telephone at (888) 930-9091. There is no cost to you.

REVERSED JUDGE TO HEAR INVESTORS' MORGAN KEEGAN CLAIMS

Tue, 27 Nov 2012 11:26:43 -0600

Morgan Keegan is back in court, this time in a bench trial scheduled to last two weeks in front of a judge who originally dismissed the SEC regulators' claims, according to an article in Bloomberg Businessweek.

US District Judge William Duffy dismissed the action brought by the SEC which alleged Morgan Keegan misled thousands of investors about the high risks of auction-rate securities. The Court of Appeals in Atlanta, GA overruled Judge Duffy and remanded the case back down to him. Judge Duffy originally ruled that statements of the brokers were immaterial in light of disclosures on Morgan Keegan's website, the article explains. The Court of Appeals did not agree with Judge Duffy, per the article, and the trial started on November 26, 2012.

Some of the broker statements classified the auction-rate securities as "liquid, short term investments" and did not disclose that the investors' money could be "tied up" for a very long time, according to the SEC's opening statement. The lawyer for the SEC went on to say the auction-rate securities were sold to investors as zero risk investments. Investors thought they could get their money back at any time due to the allegedly misleading statements of the brokers and unfortunately found that when they needed their money, it was not there. Morgan Keegan did start a buyback program at one point during the failure of the auction-rate securities it sold to its investors; this program only paid back principal invested.

Another point of contention between the District Judge and the Court of Appeals is Judge Duffy's statement that not being able to predict the market is not a securities violation. The SEC is not alleging that Morgan Keegan was misleading investors because they could not predict the market. Instead, the SEC alleges that Morgan Keegan and its brokers were all aware that the auction-rate securities offered and sold to investors was nowhere near as safe as they advertised them to be. The SEC alleges that Morgan Keegan told investors that the auction-rate securities at issue were just the same as cash, or a cash equivalent, with "zero risk", according to the article; however, the investors could not sell the securities when they tried after the auctions started to fall.

The SEC is seeking unspecified monetary penalties against Morgan Keegan. The case is Securities and Exchange Commission v. Morgan Keegan & Company Inc., 1:09-cv-01965, U.S. District Court, Northern District of Georgia (Atlanta).