David vs. Goliath – Investor Defeats Morgan Keegan in 401(k) Case
Morgan Keegan has been around since 1969. With 300 offices and 3000 employees, it certainly is one of the more established regional brokerage firms. Unfortunately, even well established firms sometimes employ “bad apples.” Morgan Keegan is no exception. Earlier this month, an arbitration panel of the Financial Industry Regulatory Authority (FINRA) ruled against the firm in a case brought by a customer and the customer’s 401(k) profit sharing plan. The claims involved investments in several RMK funds including RMK Select High Income Fund and RMK Select Intermediate Bond Fund.
The customer, Richard Fornell, claimed Morgan Keegan violated the ERISA statute and accused the brokerage firm of fraud, breach of fiduciary duty, negligence and breach of contract. After a full hearing, the arbitration panel found for the customer on most counts of the complaint and awarded almost $200,000 in damages.
Like many other recent cases involving large broker dealers, Morgan Keegan’s conduct in the case was anything but stellar. The brokerage industry has long sold the public and law makers on the concept of arbitration to settle disputes. Brokerage firms typically require customers to give up their right to a jury trial and submit disputes to arbitration. They claim arbitrations are less costly and quicker than the average lawsuit.
Accepting that premise for the moment, prior to losing at trial, Morgan Keegan asked not only that Fornell’s complaint be dismissed but also asked for $197,000 in legal fees and $40,000 in costs! Talk about a chilling effect, what customer would ever want to file an arbitration if they thought they might have to pay a quarter of a million dollars in legal fees to some silk stocking law firm?
Luckily, the arbitration panel tossed Morgan Keegan’s claim for legal fees.
What should customers do? For one, do a little investigation and see how their brokerage firm treats customers who have a dispute. Going after customers for legal fees is bad business. Especially when the brokerage firm was found to be at fault.
Since the arbitration was decided earlier this month, broker dealer giant Raymond James announced it was planning on purchasing Morgan Keegan for $930 million. Let’s hope Raymond James is much better in how it treats its customers.
The story here isn’t about the dispute over the handling of Fornell’s 401(k) account (although fraud or breach of fiduciary duty allegations are always particularly troubling), it’s about the bully tactics of a huge brokerage firm and their “BigLaw” counsel when a customer dared to make a complaint.
David versus Goliath. Luckily David won this battle.
June 2018 Update: 401(k) plans are governed by the Employment Retirement Income Security Act of 1974. That law gives powerful protections to investors. Despite the political upheaval in Washington, the courts and Congress still defend workers in this important area of law. For up-to-date information about your rights under ERISA, visit our ERISA information page.
If you have lost your money to an investment adviser, stockbroker or other financial professional and believe you were misled or cheated, contact us. Our investment fraud and asset recovery lawyers have helped many victims of fraud get back their hard earned money. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at
MahanyLaw – America’s Fraud Recovery and ERISA Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan and Washington DC. Services available nationwide.