Morgan Keegan will pay $200 million to settle claims brought by the SEC, FINRA (the self-regulatory organization for broker-dealers) and four states for allegedly misleading investors in the firm’s mutual funds. Private complainants may not be so lucky, however, in part because Morgan Keegan plans to argue that the settlement should not be admitted as evidence in arbitration proceedings.

It is ironic that an arbitration program administered by FINRA would not allow FINRA’s own determinations of wrongdoing to be admissible. FINRA has avoided providing guidance to arbitrators on their decisionmaking process, so it is unlikely to take a stand on this issue. What is the likely outcome of Morgan Keegan’s argument? Would the outcome be the same in a court proceeding? Is there an arbitration fairness issue here?

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