Guidance to Parties in Cases Involving Morgan Keegan and the RMK Bond Funds
During the past two years, a large number of cases have been filed against Morgan Keegan in the Southeast region of the country involving the same products—the RMK bond funds. Because the cases are sited in just a few hearing locations that normally do not have many cases, the arbitrator rosters in those areas were relatively small. To bolster the rosters in these locations, FINRA reached out to arbitrators across the country to serve in these cases in the Southeast locations, increasing these rosters tenfold. The process of increasing the rosters by addition of arbitrators from other parts of the country continues.
On February 25, 2010, a Tennessee Chancery court vacated a FINRA arbitration award against Morgan Keegan. In its order, the court adopted all of petitioner Morgan Keegan's reasons for vacating the award. One reason cited was that two of the arbitrators had served on other Morgan Keegan cases involving the same products in dispute. The arbitration claimants have noticed an appeal from the court's order to vacate the award. On March 2, 2010, a different judge in the same court denied a motion to vacate by Morgan Keegan in another arbitration in which an award was entered against the firm. That court has not yet issued a written order.
FINRA will Follow its Current Practices
FINRA does not believe that serving on multiple cases involving the same firm automatically disqualifies an arbitrator from serving on additional cases or requires removal for bias. However, FINRA has in the past honored timely challenges based on special circumstances, such as where the arbitrator is serving on multiple cases involving the same firm and the same product. We will continue to accept timely challenges on that basis. A timely challenge is one made promptly after the appointment of the arbitrator, either from the original list or from an extended list, and before the commencement of the next hearing session.
The concentration of Morgan Keegan RMK bond fund cases has resulted in the listing of numerous arbitrators who were assigned to other Morgan Keegan cases involving RMK bond funds. If a party knew or should have known that an arbitrator was assigned to other Morgan Keegan RMK fund matters but did not make a timely challenge to the arbitrator, that challenge will not be accepted later in the case.
Additional Measures to Address Extraordinary Circumstances
FINRA understands that these Tennessee court decisions have created uncertainty concerning the finality of arbitration awards in Morgan Keegan cases in which arbitrators are serving or have served on other Morgan Keegan cases involving the same bond funds. Rule 12412 of the Code of Arbitration Procedure provides that the Director may exercise discretionary authority and make any decision that is consistent with the purposes of the Code to facilitate the appointment of arbitrators and the resolution of arbitrations. Therefore, FINRA advises parties in claims against Morgan Keegan involving the RMK bond funds as follows:
- To ensure that parties have current information about the arbitrators on their cases, FINRA will send the parties a letter outlining the number of each arbitrator's closed or pending Morgan Keegan customer cases. Parties that receive this information may request from the arbitrators further disclosures about the cases, including information about the products involved.
- Consistent with current practice, FINRA will honor the written agreement of all the parties in a case to remove one or more of the arbitrators from that case.
- If the parties do not agree on removal, any party may request that arbitrators withdraw from a case pursuant to Rule 12409. The arbitrator who is the subject of the request decides the request for recusal.
- If the information provided by FINRA is the first indication for a party that an arbitrator served on or was appointed to other Morgan Keegan cases involving the RMK bond funds, that party will have ten calendar days from the date of the letter providing this information in which to file a challenge.
- FINRA will assume that Morgan Keegan, as a party in each of these matters, was aware of all other appointments of arbitrators to RMK bond fund cases. Therefore, these disclosures are primarily to inform the investors involved in these matters.
- If a party with previous knowledge of the arbitrator's appointment or service on other Morgan Keegan RMK bond fund cases did not challenge the arbitrator and now seeks to challenge the arbitrator because of disclosure about additional RMK bond fund cases, FINRA will not grant such challenges.
- After the ten-calendar day period, those investors will not be able to challenge the arbitrator on the basis of service on other cases involving the RMK bond funds; a later challenge will be considered untimely.
- FINRA reminds the parties that they can agree to postpone their case until the appellate courts provide clarity to the Chancery court decisions. FINRA will waive all postponement fees in those cases.
- FINRA reminds the parties that they may agree to mediate their case.
- News Release: Morgan Keegan Ordered to Pay $200 Million to Investors to Settle Allegations Regarding Sales of Bond Funds
Parties may direct any questions about this matter to Todd Saltzman, Vice President of Case Administration, Neutral Management and Operations at (212) 858-4273 or by email.