SEC Appeals Dismissal of Morgan Keegan Securities-Fraud Suit

The U.S. Securities and Exchange Commission appealed the dismissal of its securities-fraud suit against Morgan Keegan & Co. alleging the Regions Financial Corp. (RF) unit misled investors.

The SEC yesterday asked for a transcript of the lower-court proceedings to forward to the Atlanta-based U.S. Court of Appeals. It filed a notice of appeal on Aug. 26.

Judge William Duffey ruled June 28 in favor of the financial-services company, throwing out the government’s claim that it didn’t provide heightened disclosure that auction-rate securities were regularly failing. Morgan Keegan’s “failure to predict the market does not constitute securities fraud,” Duffey wrote in his opinion.

Since the case was filed two years ago, investors who lost money in the $330 billion auction-rate securities market were paid billions of dollars by dozens of banks.

The market collapsed in February 2008 when dealers stopped participating in auctions at which interest rates were periodically reset. The investments typically were municipal and student-loan-backed bonds and preferred shares.

Investors accused the financial institutions of steering them to instruments promoted as safe as cash that turned out to be illiquid and couldn’t be redeemed.

Evelyn Mitchell, a Regions Financial spokeswoman, declined to comment on the appeal.

The case is Securities Exchange Commission v. Morgan Keegan & Co., 1:09-cv-01965, U.S. District Court, Northern District of Georgia (Atlanta). The appeal is Securities and Exchange Commission v. Morgan Keegan & Co., 11-13992, U.S. Court of Appeals for the 11th Circuit (Atlanta).

To contact the reporter on this story: Laurence Viele Davidson in Atlanta at

To contact the editor responsible for this story: Michael Hytha at

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