Suit over Mamtek bonds meritless, law firm says [Columbia Daily Tribune (MO)]

JEFFERSON CITY -- The general counsel for Armstrong Teasdale said yesterday the law firm would fight Shelter Insurance Cos.' lawsuit charging it with negligence in the Mamtek factory project in Moberly.

Jay Summerville declined to discuss the specifics of Shelter's suit, but he said the St. Louis-based law firm is "absolutely certain it is without merit, and we intend to vigorously defend the lawsuit. We believe there is no liability on the part of Armstrong Teasdale or Mark Boatman."

Boatman, an Armstrong Teasdale partner, was the underwriter's attorney for Memphis investment bank Morgan Keegan & Co. Inc. in the deal that put Moberly's credit behind a $39 million bond issue to finance an artificial sweetener factory. Boatman and Morgan Keegan also are defendants in the lawsuit, which seeks to recover Shelter's $5.6 million investment and $390 million in punitive damages.

Morgan Keegan, a division of Regions Financial Corp., also has said it will fight the charges.

Armstrong Teasdale has offices in Missouri, Nevada and Shanghai, China, where it acts as Missouri's trade office through a contract with the Department of Economic Development.

Mamtek's promoters portrayed it as a U.S. affiliate of a company in China that was using a "game-changing" process to make sucralose, a zero-calorie sweetener. The company approached DED, which sought interest among cities across the state.

Moberly agreed to provide $39 million in bond financing to build and equip the factory. The state promised $17.6 million in tax credits and other incentives. Shelter, a Columbia-based company, became involved on July 26, 2010, when it purchased $5.6 million of the bonds after being approached by Morgan Keegan.

The bonds, which were rated A- by Standard & Poor's, were investment grade and fit with Shelter's investment philosophy, Vice President of Public Relations Joe Moseley said yesterday. The lawsuit was filed after attempts to reach a private settlement failed, Moseley said.

Shelter sees its bond investments, which are made to generate income to offset claims, as a way to invest client premiums where they live, Moseley said. "This is a neighboring community where we do business, and it was an opportunity to create jobs."

The bonds went into default when Mamtek failed to make a $3.2 million bond payment last summer. Construction halted, and efforts by ousted Mamtek CEO Bruce Cole to revive the plant fizzled.

Shelter's lawsuit is the first one filed in an attempt to hold those who profited from the bond issue responsible for the failure. In it, Shelter alleges Morgan Keegan, Armstrong Teasdale, and Boatman failed in their legal duty to check the claims from Cole and others with Mamtek before including them in the sales pitch for the bonds.

Shelter's lawsuit focuses in part on a series of emails in April and May 2010 from Edward Li, the Armstrong Teasdale employee who worked on the state's behalf. In the emails, Li raised questions about Mamtek's claims that it had a sweetener factory in full production in China.

The emails, which were sent to the law firm's St. Louis office as well as the state, reported that Li had found that Mamtek's Chinese factory had not been allowed to open and that its Hong Kong business office was actually a "virtual address" for registration purposes.

Boatman, who prepared the documents that would be given to potential purchasers, was not told about Li's concerns. In a November legislative hearing, Summerville said he and Boatman "had just found out that Mr. Li as a human being exists."

During the hearing, Boatman testified that when Moberly agreed to use its credit to back the bonds, Mamtek's financial strength became irrelevant. Knowledge of Li's email, he said, would not have changed things.

Explaining the layers of the deal and who was responsible for verifying claims, Boatman told the House Interim Committee on Governmental Oversight and Accountability that he wasn't discounting the importance of Mamtek's success or failure. "Mamtek matters, but Mamtek matters to the city, not to the bondholders."

At one point in his testimony, Boatman, who handles deals such as Mamtek on a routine basis, said he wasn't sure where the system failed.

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

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This article was published on page A10 of the Thursday, March 22, 2012 edition of The Columbia Daily Tribune with the headline "Shelter's suit has no merit, law firm says: Mamtek bond sales at issue." Click here to Subscribe.