* Morgan Keegan refuses to pay $333,000 in interest
* Brokerage says federal, not state, rate applies
By Suzanne Barlyn
Nov 19 (Reuters) - Morgan Keegan & Co is disputing the amount of interest owed to retired NBA basketball player Horace Grant on a $1.46 million arbitration award and has refused to pay $333,000 in interest that Grant says he is owed.
A lawyer for Grant on Friday asked the Financial Industry Regulatory Authority (FINRA), Wall Street's industry funded watchdog, to immediately suspend Morgan Keegan's brokerage license for not paying Grant the full amount after a nearly four-year battle over bond fund losses that the brokerage took all the way to a federal appeals court in California, where it lost.
Last week, Morgan Keegan sent Grant a check for $1.59 million, far less than Grant's lawyers say he is owed, leading to the suspension request.
A spokesman for Raymond James Financial Inc, which owns Morgan Keegan, did not immediately respond to requests for comment. A spokesman for Regions Financial Corp, which owned Morgan Keegan at the time of the bond fund debacle in 2008, and which remains financially responsible for the cases, declined to comment.
It is the latest twist in a bitter dispute between Grant and Morgan Keegan that began in 2008. According to correspondence reviewed by Reuters, the brokerage and former Chicago Bulls star are at odds over how to properly calculate the interest owed in a case that stemmed from losses Grant sustained in a group of troubled Morgan Keegan bond funds.
In October, the U.S. Court of Appeals for the Ninth Circuit rejected claims by Grant's former brokerage, Morgan Keegan, that arbitrators in the case who entered the $1.46 million award, might have been biased, prejudged the outcome or exceeded their power.
The award included $1.45 million for damages and $10,000 for costs.
FINRA, which also runs the arbitration forum in which investors typically resolve disputes against their brokerages, can generally suspend brokerages for not paying arbitration awards within 30 days. Exceptions are made when parties take the unusual step of contesting arbitration rulings in court.
Grant's Chicago-based securities lawyer, Andrew Stoltmann said the basketball star is owed a total of $1.92 million. That amount includes $464,000 in interest - calculated at 10-percent annually since September, 2009, as allowed by California law and FINRA rules, according to Stoltmann.
Morgan Keegan, however, says the 10-percent interest rate should apply only for part of the time that the case was pending, according to a letter to Stoltmann from a lawyer for Morgan Keegan. Instead, a federal interest rate of 0.29 percent should apply for the period after a federal district court upheld the arbitration ruling in July, 2009, wrote Terry Weiss, an Atlanta-based lawyer that represents Morgan Keegan, in a letter to Stoltmann on Nov. 1.
The brokerage appealed the district court's decision to the Ninth Circuit - a process that lasted for more than two years and ended unsuccessfully for the brokerage. Weiss said the brokerage only owes Grant $1.59 million including its calculation of interest, Weiss wrote.
Morgan Keegan has faced more than 1,000 customer arbitration cases over the bond funds, which invested in risky mortgage-backed securities and were marketed as being safe. The funds later lost as much as 80 percent as the subprime market imploded. Morgan Keegan paid a $200 million civil regulatory fine over the funds and a star manager at the firm was banned from the securities industry.
Some of those cases are still winding through FINRA's arbitration system.
The dispute over how much interest is owed to Grant could take months more to resolve, say lawyers, because the procedure for dealing with such an issue is unclear.
"There's no precedent for something like this," said Jonathan Uretsky, a New York-based securities lawyer who represents brokerages.
The federal district judge who initially affirmed the ruling could decide the matter or it could be decided by FINRA if a suspension process against Morgan Keegan moves forward.
Stoltmann, in his letter to FINRA, cited a FINRA arbitration rule directing interest to be applied at the rate prevailing in the state where the ruling was entered. There is "no carve-out" for brokerages "who continue to abuse the appeals process after losing" in efforts to overturn a ruling, Stoltmann wrote.
Grant, 47, played in the NBA for 17 years and won three titles with Chicago Bulls teams featuring Michael Jordan and one with the Los Angeles Lakers. He 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.