CountryMark Slaps Morgan Keegan With Lawsuit
Thursday, February 07, 2008
Farmer-owned Indiana fuel refiner CountryMark Cooperative declared it was burned by its investment adviser's decision to sink $10 million of the co-op's capital last year into mortgage-backed securities that included now-notorious subprime home loans.In a federal lawsuit filed in Indianapolis, CountryMark claims its $10 million note is in default and valueless because no trading market exists for it. CountryMark's lawsuit against Morgan Keegan & Co. charges the brokerage subsidiary of Regions Financial Corp. with abusing federal and state securities laws and asks for recovery of the $10 million.
Morgan Keegan spokeswoman Kathy Ridley said the note sold to CountryMark carried the "highest available" safety rating for commercial paper by Standard & Poor's and the default was "a rare and unexpected occurrence." Ridley said Morgan Keegan acted as a distributor in the deal, buying the note from its underwriter, Merrill Lynch, and reselling it to CountryMark. "Morgan Keegan relied on the rating and its seller, Merrill Lynch, and we intend to vigorously defend the suit," she said.
CountryMark's lawsuit says money managers at the Memphis, Tenn.-based investment company disregarded CountryMark's request to invest only in safe, short-term corporate commercial paper and in its place purchased a $10 million note backed by residential mortgages. Several were high-risk subprime mortgages that have seen a high number of delinquencies in the past year.
Within a week of CountryMark's purchase of the note in August, it was downgraded to junk status by rating services, and in September it went into default, the lawsuit says. No market exists to sell the note, CountryMark says. "I am pretty disappointed on a number of issues with both Regions Bank and Morgan Keegan. We have really been let down," CountryMark's chief executive, Charlie Smith, said.
Indianapolis-based CountryMark, which is owned by 16 Indiana farm co-ops, is financially strong enough to withstand the loss, he said. But it would force the co-op to pare back capital projects and other discretionary spending, Smith said.
CountryMark has abandoned Morgan Keegan as investment adviser and cut off its banking relationship with Regions, a regional bank based in Alabama, he said.
Smith said management at Morgan Keegan and Regions declined to discuss the bad investment with executives at CountryMark.
Morgan Keegan faces many lawsuits and other complaints by clients who charge they lost money in its funds and other investments based on subprime mortgages. A class-action lawsuit on behalf of investors has been filed in its home state of Tennessee.
Late last year, the Indiana Children's Wish Fund in Indianapolis settled an arbitration claim against Morgan Keegan over about $50,000 in losses the charity said it suffered by investing in a Morgan Keegan bond fund.