Auction-Rate Products Cost Raymond James $300 Million, But Morgan Keegan Dodges A Bullet

Wednesday, June 29, 2011 22:35
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Auction-Rate Products Cost Raymond James $300 Million, But Morgan Keegan Dodges A Bullet

Tags: alternative investments

Raymond James has agreed to buy back $300 million in auction-rate securities to settle claims that its affiliates sold the instruments as being as good as cash, while a judge gave Morgan Keegan a pass.

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On the Raymond James front, eight states brokered the settlement, which also includes $1.7 million in fines. 

 

While the firm previously claimed it would fight any attempt to get it to buy back the securities it sold before the credit markets seized up in 2008, it has also been proactive in getting the issuers to cash out clients at every opportunity over the last few years.

 

Three years ago, Raymond James clients owned about $2.1 billion in the instruments, so a $300 million buyback is a lot better for the firm than it could have been.

 

Separately, Morgan Keegan beat an auction-rate complaint of similar scope. 

 

Although the firm sold plenty of the paper, reportedly without disclosing the risks, an Atlanta judge threw out the most recent claim that one-time clients have lodged.

 

As William S. Duffey Jr. notes -- in a note of sanity for a "due diligence"-crazed industry -- the only crime that Morgan Keegan committed was failing to predict that the market in these instruments would go south.

 

And, he concludes, that's a long way from securities fraud.

 

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