Opinion ID: 799254
Heading Depth: 2
Heading Rank: 6

Heading: ARS Manual

Text: In addition to this ARS web page, Morgan Keegan relies on its 24-page manual (the ARS Manual) describing its auction practices and procedures. After the May 31, 2006 cease-and-desist order, Morgan Keegan prepared and sent this ARS Manual to all customers who already held ARS at the time the ARS Manual was prepared. Like the ARS web page, the ARS Manual shows that Morgan Keegan was aware of, and knew how to disclose, the liquidity risk of ARS. For example, the ARS Manual has the same information quoted above from the shorter ARS web page that discusses the liquidity risk of ARS. The ARS Manual also warns that [h]olders who have submitted sell orders should be aware that, in the event of an auction failure, they will not be able to sell all, and may not be able to sell any, securities in the auction. A section entitled Risk Factors and Special Considerations explains that (1) Morgan Keegan may act as a buyer or seller in auctions, but is not obligated to do so, and (2) the fact that an auction clears successfully does not mean that an ARS investment involves no significant liquidity or credit risk. Under a section styled No Assurances Regarding Auction Outcomes, Morgan Keegan warns that it provides no assurance as to the outcome of any auction. Nor does Morgan Keegan provide any assurance that any bid will be successful, in whole or in part, or that any auction will clear at a rate that a bidder considers acceptable. Also like the ARS web page, the SEC does not dispute that the ARS Manual adequately advises about liquidity risk. Rather, the SEC stresses that Morgan Keegan did not make the ARS Manual's disclosures readily accessible to new ARS customers in 2008 and did nothing else to ensure its customers saw or even knew about the ARS Manual. It is undisputed that Morgan Keegan did not require its brokers to distribute copies of the ARS Manual directly to new customers before or after they purchased ARS. And even though the ARS Manual was apparently posted somewhere on Morgan Keegan's website, Morgan Keegan has not cited evidence showing specifically where it was on the website or how a customer would navigate to it. [4]