(Dow Jones) A securities arbitration panel has ordered Morgan Keegan & Co., the Memphis-based brokerage, to pay an investor $2.5 million for losses associated with several bond funds that made bad bets on mortgage-related holdings.

Morgan Keegan, a unit of Alabama-based Regions Financial Corp. (RF), was found liable for negligence, failure to supervise and selling unsuitable investments to Andrew Stein, a 38-year-old investor in Jupiter, Fla,. and his two companies, according to an award by a Financial Industry Regulatory Authority, or Finra, arbitration panel dated Feb. 19.

Stein and his companies originally sought more than $12 million in damages.

A Morgan Keegan spokesman confirmed the award is the largest ordered against the brokerage in a flood of arbitration claims involving six bond funds that were heavily invested in collateralized debt obligations and other subprime-related securities. The funds declined in value by as much as 82% following the nation's housing meltdown.

Regions has since transferred management of those funds to Hyperion Brookfield Asset Management Inc. of New York, which subsequently liquidated and closed two of the funds, according to a Morgan Keegan spokesman.

Stein and his companies alleged in their statement of claim that Morgan Keegan didn't disclose the "nature and magnitude" of certain risks to which the funds were exposed "until it was too late." The claimants also alleged, among other things, that Morgan Keegan artificially inflated the value of the funds' assets so they would appear to be more stable. That would prevent investors from determining the true risks, they alleged.

Andrew Campbell of Birmingham, Ala., who represented Stein, one of the investors, described his client as an entrepreneur who invested a substantial percentage of proceeds he received from the sale of a wholesale furniture business that he built and later sold.

Stein and his companies are have also filed a state court case in Alabama against Regions Financial and Morgan Asset Management, Inc., part of the brokerage firm, alleging fraudulent valuation and pricing of its funds, according to Campbell. A Morgan Keegan spokesman declined comment, citing pending litigation.

In September, retired NBA star Horace Grant was awarded $1.46 million for losses associated with the funds. Morgan Keegan is trying to overturn that award.

Morgan Keegan and Finra's dispute resolution unit has been inundated by more than 400 claims by investors in the funds who were hit by sizable losses in 2007 and 2008.

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