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* Morgan Keegan ordered to pay over $250,000 to couple
* Invested clients' entire account in Madoff feeder fund
* Failed to do adequate due diligence on fund-FINRA panel (Adds information on panel's findings of due diligence failures)
By Helen Kearney
NEW YORK, March 7 (Reuters) - A Financial Industry Regulatory Authority arbitration panel has ordered Morgan Keegan to pay more than $250,000 to a Florida couple after the firm invested all of their portfolio in a hedge fund that channeled its money to Bernard L. Madoff Securities.
The arbitration panel found that Morgan Keegan, a unit of Regions Financial Corp (RF.N), failed to do adequate due diligence on Greenwich, Connecticut-based Greenwich Sentry LP, which was a feeder fund for Madoff.
Morgan Keegan clients Jeffrey and Marisel Lieberman invested their entire account of $200,000 in the fund, which filed for bankruptcy in November 2010.
"There is clear and convincing evidence that ... Morgan Keegan was grossly negligent in not performing substantial due diligence and as a result it fraudulently misrepresented the risk of this investment," the panel wrote.
The panel ordered Memphis, Tennessee-based Morgan Keegan to repay the Liebermans their $200,000 investment, plus 6 percent annual interest from when the investment was made in May 2007. The firm was also ordered to pay $50,000 in punitive damages and $14,000 for expert witness fees.
"We are very pleased with the decision," said Barbara Riesberg, the Liebermans' lawyer. "My clients got everything we asked for."
A Morgan Keegan spokeswoman said the firm disagreed with the panel's findings and planned to appeal the award.
The panel said that under Morgan Keegan's internal compliance rules, clients should not be invested in hedge funds unless they list "speculation" as one of their primary investment objectives when they open an account. The Liebermans had listed speculation as their last investment objective.
Morgan Keegan did very little due diligence on the fund, failing to request an audited report of Madoff's firm or to even do a basic Internet search on the fund, the panel said.
The Liebermans' financial adviser, Julio Almeyda, was cleared of wrongdoing and the panel recommended that references to the case be removed from his registration records. The panel found that Almeyda was not aware of the lack of due diligence performed by his firm and did not know that the information he gave to the Liebermans about the riskiness of the investment was false and misleading.
Morgan Keegan has faced hundreds of arbitration proceedings over the past year from clients who had invested in mutual funds that lost more than 50 percent of their value from exposure to subprime mortgage debt. (Reporting by Helen Kearney; Editing by Richard Chang, Maureen Bavdek and Bernard Orr)