Horace Grant, most famous for his time with the Chicago Bulls, won a $1.46 million arbitration award against Morgan Keegan & Co. for losses in bond mutual funds. The award, announced last Friday, represents nearly all of the unrealized losses Grant suffered as of January 2008.
Grant had alleged that Morgan Keegan, a Memphis, Tenn.-based broker, sold him four high-yield bond funds with more risk in them than he was told. Morgan Keegan marketed the funds as conservative investments appropriate for retirees who were looking to protect their principal.
In 2007, the four funds plummeted by an average of 58 percent, according to Grant's complaint filed in March 2008 with the Financial Industry Regulatory Authority (FINRA). Similar bond funds lost 6.9 percent that year, the complaint said.
The Morgan Keegan funds were battered by the meltdown in sub-prime residential mortgages, largely because they invested in risky debt-related securities and other mortgage-related holdings. Morgan Keegan failed to disclose the funds' large concentrations of such securities.
The brokerage firm, a unit of Regions Financial Corp., based in Birmingham, Ala., faces a flood of arbitration claims from investors related to its high-yield bond funds. Investors in the funds reportedly lost more than $2 billion in 2007.
Last year, complaints involving mutual funds outnumbered complaints involving stocks for the first time, according to FINRA. The phenomenon has continued this year, as last year's bear market demonstrated that mutual funds that invest in bonds or other fixed-income products are not necessarily less volatile than stocks.
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