10/15/2012 03:23 pm ET Updated Dec 15, 2012

Horace Grant: 'I Would Rather Play Against' Shaq Than Fight Morgan Keegan Brokerage Battle

* Ex-NBA star awarded $1.46 mln in 2009 for fund's losses

* Dispute was presented in federal appeals court hearing

* Court questions Morgan Keegan's view of arbitration

By Suzanne Barlyn

Oct 15 (Reuters) - Former NBA all star Horace Grant said facing 7-foot-1, 325-pound Shaquille O'Neal on the basketball court would be preferable to the years-long legal struggle he has waged to collect $1.46 million that securities arbitrators say a brokerage owes him.

"I would rather play against a guy like Shaq any day than to chase something that is mine that was taken," the former Chicago Bulls forward told Reuters last week. Lawyers for brokerage Morgan Keegan & Co had just argued in a California appeals court that Grant's award for losses tied to a group of troubled bond funds should be overturned.

Arbitrators awarded Grant $1.46 million in 2009. Since then he has had to battle Morgan Keegan's efforts to overturn the ruling in court.

The years spent battling Morgan Keegan, a unit of Raymond James Financial, have been "some of the most frustrating in my life," said Grant in a telephone interview.

Grant and many other former Morgan Keegan clients claim the firm owes them millions a fter a group of its bond funds suffered sizable losses in 2007 and 2008. The brokerage has faced more than 1,000 customer arbitration cases and has paid a $200 million civil regulatory fine.

It is fighting to overturn some awards to investors, including Grant's. Some cases are still winding through arbitration.

It is unusual for a financial firm to go to court to try to overturn rulings made by arbitrators for the Financial Industry Regulatory Authority (FINRA). Such expensive court battles can leave investors waiting years to collect their awards.

Morgan Keegan has also had to go to court to fight investor challenges to some of the cases it won in arbitration.

In cases such as Grant's, Morgan Keegan's lawyers have argued that the outcomes should be overturned because arbitrators were biased or disregarded the law. When asked to comment further, a Morgan Keegan spokeswoman directed Reuters to Raymond James, which acquired the brokerage from Regions Financial Corp in April. A Raymond James spokesman declined comment, and directed Reuters to Regions, which retained financial responsibility for the cases after selling Morgan Keegan.

The Regions spokesman declined to comment.


In a 17-year NBA career, Grant, 47, faced formidable foes including O'Neal, and the two also spent some time as teammates. Grant won three titles with Chicago Bulls teams featuring Michael Jordan and one with O'Neal on the Los Angeles Lakers.

Grant bought most of the troubled funds through his Morgan Keegan brokerage account in 2004. At the time, the brokerage owned the sports agency that represented Grant.

Morgan Keegan promoted the group of bond funds as safe, even though they had invested in risky mortgage-backed securities. The funds later lost as much as 80 percent as the subprime market imploded. Regulators alleged that a Morgan Keegan star fund manager at the time, James Kelsoe, deliberately inflated the value of the subprime securities. He ultimately agreed to pay $500,000 in penalties and be barred from the securities industry by the U.S. Securities and Exchange Commission.

Grant's legal odyssey began in 2008, when he filed an arbitration claim against Morgan Keegan after positions he owned in some of those funds lost most of their value. Brokerages typically require investors to sign an agreement to arbitrate legal disputes when they open accounts.

Grant won and Morgan Keegan was ordered to pay $1.46 million. The brokerage immediately went to court to have the award thrown out. After losing the first round in the U.S. District Court for the Central District of California, Morgan Keegan appealed, leading to last week's hearing before the U.S. Court of Appeals for the Ninth Circuit in Pasadena, Calif.

Grant's case hints at Morgan Keegan's legal strategy: using the courts in its effort to overturn arbitration awards to some former customers. Courts rarely overturn arbitration decisions, but Morgan Keegan has been successful in some instances.

The ex-NBA star's lawyers said the company challenged their high-profile client's award to deter other investor claims. "They want people to know that even if you win, it could be four or five years before you get your money," said Andrew Stoltmann, one of the lawyers representing Grant.

Morgan Keegan also is opposing a separate $3 million arbitration case Grant filed in 2010. In that case, Grant's lawyers alleged the brokerage's ongoing legal proceedings forced him to cash in his NBA pension. Morgan Keegan sued to stop the arbitration, saying the case belonged in court.

When a federal judge disagreed, Morgan Keegan appealed.


Judges have voiced skepticism about Morgan Keegan's recent legal efforts. Last Tuesday, a federal judge chided the firm for requiring customers to resolve disputes via arbitration - and then asking courts to throw out unfavorable rulings.

"You want something that's the equivalent of a court proceeding, but yet you want arbitration," said J udge Harry Pregerson while questioning a lawyer for Morgan Keegan last Tuesday. Reuters reviewed a recording of the proceedings posted on the court's website.

A three-judge panel also heard Grant's second case in the Ninth Circuit last Tuesday. During that session, Morgan Keegan's lawyer, Terry Weiss of Greenberg Traurig LLP, argued that Morgan Keegan's mandatory arbitration clause did not apply because the case was not an "account-related dispute."

Judge William Fletcher responded: "It's not as if you shot his dog and he's asking for arbitration of that."

Morgan Keegan also faced tough questions from a federal appeals judge in New Orleans last month related to a $9.2 million arbitration ruling involving 19 parties, including individuals, trusts, and a foundation who suffered losses from the same group of funds.


Morgan Keegan attorneys have defended their efforts, saying arbitrators in Grant's case awarded him more money than he was entitled to and that they were biased against the firm.

During the original hearings in 2008, the three arbitrators were inadvertently taped discussing the case. In one instance, an arbitrator called Morgan Keegan's bond funds "crap" and said the brokerage created a "sucker play."

"All we want is an opportunity to retry the case before a panel that isn't biased," Weiss told the court, claiming the arbitrators decided before hearing his client's witnesses.

But Judge Fletcher said many arbiters share their views before a case concludes. "I have made up my mind on cases, and then I hear some more evidence and I change my mind," he said.

One of Grant's lawyers, Robert Crowe, said the taped comments did not indicate bias because the conversation happened two or three days into the four-day arbitration proceeding. By that time, Morgan Keegan's lawyers had already submitted a brief and had also questioned Grant's witnesses, Crowe said.

The judge also suggested that the opinion discussed by the arbitrators may have been supported by the evidence. "That might have been true - it might have been crap and it might have been a sucker play," said Judge Fletcher.

Weiss declined comment and directed Reuters to a Morgan Keegan spokeswoman.

A decision for Grant is likely months away. But he is mystified about why he must endure so many court proceedings after Morgan Keegan paid a fine to regulators over the funds and one of its star fund advisers was barred from the industry.

In the meantime, Grant, who has three children, including two in private school, said he has been able to cash in other investments to pay his expenses, but noted that other Morgan Keegan customers might not have a buffer.

"Someone 65 or 70 years old has to go back to work because of Morgan Keegan," he said.