Shelter Insurance files lawsuit over Mamtek bonds [Columbia Daily Tribune (MO)]

JEFFERSON CITY -- Shelter Insurance Cos. is suing investment banker Morgan Keegan & Co. for $390 million, charging that the Memphis firm failed in its legal duty to protect investors when it sold bonds issued for the failed Mamtek project in Moberly.

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Shelter Insurance Lawsuit

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The lawsuit, filed Monday in Cole County Circuit Court, also names St. Louis law firm Armstrong Teasdale and Mark Boatman, a partner in the firm, as defendants.

Columbia-based Shelter in July 2010 purchased $5.6 million of the $39 million bond issue used to finance construction and equipment for the proposed artificial sweetener plant. Shelter, which had $3.6 billion in assets according to its 2010 financial report, was using investments in bonds to provide a reliable stream of income to help cover claims.

Morgan Keegan earned $411,000 as underwriter for the bonds, issued by Moberly with a promise that the city would use its revenue from the company to make the bond payments.

The investment banking house purchased the entire issue from Moberly, then marketed the bonds to investors.

The sales materials repeated inflated financial projections and numerous other false claims from Mamtek to entice investors, Shelter says in the lawsuit.

"Defendants' conduct and actions in providing untrue and misleading information without conducting any reasonable inquiry into the underlying facts constitutes conscious indifference or reckless disregard for the truth and for the rights of third parties, including plaintiffs, and warrants the imposition of punitive damages under Missouri law," attorney Robert Horn of Horn, Aylward & Bandy LLC of Kansas City wrote in the Shelter petition.

In an interview, Horn said it is important to hold Morgan Keegan responsible for the sales materials used to market the bonds. "Investors have to rely on information they are given by professionals like Morgan Keegan," he said.

Other plaintiffs will be added to the lawsuit soon, Horn said.

In a statement, Morgan Keegan said, "The claims made in the lawsuit have absolutely no merit and we look forward to defending ourselves vigorously."

Armstrong Teasdale did not return calls or respond to email messages seeking comment.

The four-count lawsuit is the first legal attempt to hold a person or company that profited from the bond deal accountable for bondholder losses. Several other court cases are pending, but they target Mamtek or the unfinished factory and equipment.

In addition to seeking punitive damages of 10 times the amount of the bond issue, Shelter is asking for a jury trial that would return its original investment and force Morgan Keegan, Armstrong Teasdale and Boatman to forfeit the money they made on the deal.

Of the original $39 million bond issue, about $4 million remains. In trades on March 5, $100,000 worth of bonds sold for less than 24 percent of face value, making Shelter's investment worth about $1.4 million if it could find a buyer.

Mamtek began in Missouri as "Project Sugar," the code name it was given when the company first approached the state Department of Economic Development. Led by Beverly Hills, Calif., businessman Bruce Cole, Mamtek claimed it had substantial private investment, a valuable recipe for sucralose and a factory in China. Cole also claimed Mamtek had a contract with a Chinese firm to buy the entire output of the factory.

After the state began seeking a local partner for the company, Moberly promised to finance it. Morgan Keegan was hired to handle underwriting duties and, the lawsuit alleges, did not insist that its detailed request for information was answered before preparing the sales materials.

Morgan Keegan sent a questionnaire to Mamtek on May 28, 2010. In it, Morgan Keegan "sought detailed organizational, operational and financial data which, if provided, would have elicited crucial information about the problems inherent in Project Sugar."

But instead of waiting until that data had been provided and investigated for truth, the company caved in to demands from Mamtek, the city and the state for quick action, Horn wrote.

Reach Rudi Keller at 573-815-1709 or e-mail [email protected].

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This article was published on page A16 of the Wednesday, March 21, 2012 edition of The Columbia Daily Tribune with the headline "Shelter sues over Mamtek bonds: Company seeks $390M in suit." Click here to Subscribe.