The New York Times’ Gretchen Morgenson has done it again. Her article, “Findings That May Get Lost in Arbitration,” doesn’t just expose James G. Kelsoe Jr. and the Morgan Keegan Fund for misleading investors (she already did that in 2007).
Morgenson’s reporting also highlights the failure of both the SEC and the FINRA arbitration process.
The SEC enforcement action came almost four years (what in heaven’s name were they doing for four years?) after a settlement between Morgan Keegan and the Indiana Children’s Wish Fund. Kelsoe, the Keegan Fund manager, pushed a bad investment — essentially making up the price — on the non-profit foundation, causing it to lose $48,000 and leaving nine terminally ill children with unfulfilled wishes. Nice guy. Stealing from a charity.
This belated enforcement action finally punished Morgan Keegan’s blatant misrepresentation of investments which cost investors more than $1 billion. A leading firm in what they call Wall Street South (same level of greed, just add Southern accents), Morgan Keegan must pay a substantial fine and Mr. Kelsoe has thankfully agreed to a lifetime ban from the securities industry. Let’s hope, like Pete Rose, the baseball ball player who bet against his own team, Mr. Kelsoe is never reinstated.
End of story? Happy ending? Well… not exactly. Individual defrauded investors must seek a judgment against Morgan Keegan and damages in a FINRA arbitration process to be made whole. Morgan Keegan attorneys blithely say they will try to block use of the SEC enforcement action as evidence in these individual proceedings. How do those guys sleep at night? (“Hi honey, how was your day at work?” “Awesome, I spent my day beating up on investors who in some cases have lost their entire life savings. Yep, I argued evidence of fraud by the very same firm, in the very same case should not be used against them.” “That’s so nice dear, I’m proud of you, now wash up for dinner.”).
First, in those four years, when the SEC was taking its bureaucratic sweet time and dotting every I… crossing every T, they should have required as part of the “settlement” that Morgan Keegan be forbidden from arguing in the context of individual lawsuits against the admissibility of the SEC enforcement action. Slam that door shut.
Second, any arbitrator worth his or her $600-800 hourly wage should act decisively and allow all credible evidence into the record. They are perfectly capable of weighing its importance. Unlike a jury, they are trained and paid handsomely to do just that. We wish each of these investors well and remind them to send Gretchen Morgenson a nice thank you card.
Assisted by Natasha Duarte