FOR IMMEDIATE RELEASE
Thursday, April 04, 2013
Contact: Liz Abram-Oldham, ((573) 522-1009
Kander Announces Cease and Desist Order against Morgan Keegan for Securities Fraud Related to Mamtek Bonds
Jefferson City, Mo. — Missouri Secretary of State Jason Kander today announced a cease and desist order against Morgan Keegan & Co., Inc., regarding the firm's alleged fraud and dishonest and unethical practices in selling bonds related to the failed Mamtek sweetener factory in Moberly.
The petition alleges that Tennessee-based Morgan Keegan did not adequately investigate the feasibility of Mamtek's business plan and did not disclose all of the risks of investment to the investors who purchased the bonds.
"The petition my office filed alleges that, without Morgan Keegan's involvement, this failed investment would not have cost Missouri investors more than $6.5 million," Kander said. "Companies have a duty to disclose the risks of stocks and bonds before their clients invest, and our Securities Division will continue to make sure that these companies do business in a responsible, ethical way in Missouri."
Morgan Keegan misrepresented that Mamtek was operating a facility in China that was actively producing sucralose, the petition alleges. In fact, it is unclear if the facility ever existed or produced sucralose, but it was not producing sucralose in the summer of 2010, as Morgan Keegan could easily have verified.
The petition also asserts that Morgan Keegan misrepresented to investors that their bond payments were secured by Mamtek's patents, when, in fact, Mamtek did not have any patents. In fact, the principal patent application supporting Mamtek's sucralose process was preliminarily denied in 2008 and finally denied in May 2010, two months before Morgan Keegan began selling the bonds.
The petition alleges that Morgan Keegan made fraudulent statements to investors in selling the bonds. For instance, while the bonds themselves did not guarantee that Moberly would make the payments if Mamtek failed to pay it, the petition claims that Morgan Keegan falsely told some investors that Moberly had promised to pay back the bonds if Mamtek failed.
The City of Moberly, where the Mamtek facility was to be built, issued $39 million in bonds to finance the facility's construction. Moberly was to make the required payments on the bonds with money Mamtek would pay it from the operation of the sucralose facility there. Morgan Keegan helped Moberly issue the bonds, prepared the offering, immediately purchased them upon issuance, and then resold them to the public.
The petition also alleges that Morgan Keegan failed to disclose information regarding Mamtek's financial condition and its ability to construct and experience at constructing sucralose facilities. The petition also claims that Morgan Keegan failed to follow up on claims regarding sales contracts and letters of interest Mamtek had obtained regarding its sucralose.
"Many problems existed with the offering, and if Morgan Keegan had done its due diligence and investigated the feasibility of Mamtek's business plan, we would not be in this situation. An appropriate investigation by the firm would have raised enough questions about the Mamtek offering to, at the very least, prevent investor losses," Kander said. For its role in the bond offering, Morgan Keegan made approximately $2.5 million. Kander also noted that other states are looking into Morgan Keegan's sales of Moberly's bonds.
The cease and desist order prevents Morgan Keegan from omitting material facts when selling bonds and from failing to adequately investigate bond offerings. The petition also seeks full restitution, civil penalties, fees and costs.
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