Clear And Convincing Evidence Costs Morgan Keegan $270,000
A Miami Financial Industry Regulatory Authority (FINRA) arbitration panel has found Morgan Keegan liable for fraudulent misrepresentation, breach of fiduciary duty, negligence, violation of Tennessee and Florida Statutes and negligent supervision and ordered Morgan Keegan to pay the Claimants $200,000 in compensatory damages plus $14,000 for expert witness fees. The panel also found that Morgan Keegan was grossly negligent in the handling of the Claimants’ account and awarded $50,000 in punitive damages, in addition to assessing all of the $6,075 in forum fees against Morgan Keegan.
The case involved the Claimants’ investments in the Greenwich Sentry, LP Hedge Fund, which was reputedly called a “feeder fund” for Bernard L. Madoff Securities. Greenwich filed for bankruptcy in 2010 citing the cause as being the costs associated with the Madoff related litigation. In fact, the investment in the hedge fund represented 100% of the investments in the Claimants’ account. In determining whether to award punitive damages, the panel wrote a detailed explanation of their findings. Specifically, the panel focused on a Morgan Keegan memo dated August 28, 2006 that said that if the account is predominantly composed of a hedge fund, “speculation” should be one of the primary objectives of the customer and if the documents do not reflect that the transaction is appropriate, the branch manager must reject the transaction. The documents indicated that “speculation” was the Claimants’ last investment objective, not their primary objective; that they had little experience with options and the investment was not turned down by the branch manager.
The panel concluded that “there is clear and convincing evidence that Respondent Morgan Keegan was grossly negligent in not performing Substantial Due Diligence” which “resulted in the total loss of Claimants’ investment.
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