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1 DB04/0832104.0004/9016690.2
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI
JOHN W. CROMEANS, JR., ) INDIVIDUALLY AND ON ) BEHALF OF ALL OTHERS ) SIMILARLY SITUATED )
) Plaintiff, )
) v. ) CASE NO.: 2:12-CV-04269-NKL
) MORGAN KEEGAN & CO., INC., ) AND ARMSTRONG TEASDALE, ) LLP )
) Defendants. )
ANSWER OF DEFENDANT MORGAN KEEGAN & COMPANY, INC.
TO FIRST AMENDED CLASS ACTION COMPLAINT
Defendant Morgan Keegan & Company, Inc. (“Morgan Keegan”) answers the allegations
of Plaintiff John W. Cromeans, Jr. (“Cromeans” or “Plaintiff”) as follows
Nature Of The Action
1. This is a class action on behalf of a class (the “Class”) consisting of all persons
other than defendants, their respective employees, and privies, who purchased bonds (the
“Bonds”) issued by the Industrial Development Authority of the City of Moberly, Missouri (the
“Authority”) in connection with the acquisition of certain land and the construction of a
sucralose manufacturing and processing facility in the City of Moberly, to be owned and
operated by the United States affiliate of Mamtek International (“Mamtek”).
ANSWER: Morgan Keegan admits this is a putative class action complaint but denies
that class action is appropriate.
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2. Plaintiff John W. Cromeans, Jr., (“Cromeans” or “Plaintiff”) is an adult resident
of Alabama. Cromeans invested in the Bonds after receiving marketing materials concerning
them from Defendant Morgan Keegan. Cromeans’ claims are typical of those raised by other
investors and he would adequately represent the other class member’s claims.
ANSWER: Morgan Keegan admits that Cromeans is an adult and that he invested in the
Bonds. Morgan Keegan denies that Cromeans' claims are typical and that he would adequately
represent other class members' claims or interests. Morgan Keegan lacks sufficient information
regarding the remaining allegations.
3. Defendant Morgan Keegan was the underwriter of the Bond Issue. Morgan
Keegan is a Tennessee corporation with its principal place of business in Memphis, Tennessee.
At all times relevant to this action, Morgan Keegan was a subsidiary of Defendant Regions
Bank.
ANSWER: Morgan Keegan denies that it was a subsidiary of Defendant Regions Bank
and admits all remaining allegations.
4. Defendant Regions Bank was at all times relevant to this complaint, the parent
company of Morgan Keegan with the power to direct or cause the direction of the management
and policies of its subsidiary Morgan Keegan and was thus a “control person” of Morgan
Keegan. Regions is an Alabama corporation with its principal place of business in Birmingham,
Alabama.
ANSWER: Morgan Keegan denies the first sentence of these allegations and lacks
sufficient information to form a belief regarding the truth of the second sentence of these
allegations. By way of further Answer, the Court has already dismissed Regions Bank.
5. Defendant Armstrong Teasdale, LLP, (“Armstrong Teasdale”) is a Missouri
limited partnership with its principal place of business in St. Louis, Missouri.
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ANSWER: Morgan Keegan admits that Armstrong Teasdale's principal place of business
is in St. Louis Missouri and lacks sufficient information regarding the remaining allegations.
6. The Offering Statement which was prepared and disseminated by Morgan
Keegan contained material misrepresentations and omitted material facts with respect to
Mamtek, its business, operations, and prospects. Moreover, Morgan Keegan made uniform
false material representations to Plaintiff and members of the plaintiff class with respect to the
security for the Bonds. Morgan Keegan has testified in public hearings that Armstrong
Teasdale was the ultimate source of many of these misrepresentations and it blindly relied on
Armstrong Teasdale’s work.
ANSWER: Morgan Keegan denies these allegations.
Jurisdiction And Venue
7. This Court has jurisdiction of this action under 28 U.S.C. §§ 1332(d), 1441 and
1446. Cromeans filed his original complaint in the Circuit Court of the State of Missouri, in and
for the County of Cole. On or about, October 12, 2012, Defendant Morgan Keegan removed the
case to the United States District Court, Western District of Missouri. No party objected to this
Court’s jurisdiction over the case.
ANSWER: Morgan Keegan does not challenge the Court's jurisdiction at this time, but
reserves the right to do so in the future should circumstances warrant. Morgan Keegan admits it
has a registered agent in Cole County but lacks sufficient information to form a belief regarding
the registered agent of Regions Bank. Regions has been dismissed from this case. The venue
allegations set forth a legal conclusion to which no responsive pleading is required. To the
extent a responsive pleading is required, Morgan Keegan denies these allegations.
Class Action Allegations
8. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
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Procedure 23 on behalf of the Class consisting of all other persons or entities that purchased the
Bonds issued by the Industrial Development Authority of the City of Moberly, Missouri.
Excluded from the Class are the defendants herein, members of their immediate families, any
subsidiary, affiliate, or control person of any such person or entity, officers and directors of
Morgan Keegan and the legal representatives, heirs, successors or assigns of any such excluded
party.
ANSWER: Morgan Keegan denies that this action is appropriate as a class action or that
Rule 23 applies.
9. The members of the Class are so numerous that the joinder of all members is
impracticable. While the exact number of Class Members is unknown to Plaintiff at this time and
can only be ascertained through appropriate discovery, Plaintiff believes that there are, at a
minimum, several hundred members of the Class who are believed to be geographically
dispersed throughout the United States.
ANSWER: Morgan Keegan denies that this action should be prosecuted as a class action.
Morgan Keegan denies that there are several hundred members of the putative Class.
10. Plaintiff’s claims are typical of the claims of the Class, as Plaintiff purchased the
Bonds during the Class Period and sustained damages arising out of Defendants’ conduct in
violation of applicable law as complained of herein.
ANSWER: Morgan Keegan denies these allegations.
11. Plaintiff will fairly and adequately protect the interests of the members of the
Class, and has retained counsel competent and experienced in class action and securities
litigation. Plaintiff has no interests that are contrary to or in conflict with those of the Class he
represents.
ANSWER: Morgan Keegan denies these allegations
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12. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting only individual members of the Class. Among the
questions of law and fact common to the Class which predominate over any questions affecting
individual members of the Class are:
a. whether defendants participated in and pursued the common course of
conduct complained of herein;
b. whether documents, filings, releases and statements disseminated to the
investing public, during the Class Period, omitted and/or misrepresented material
facts about the Bonds;
c. whether defendants acted knowingly, willfully, or recklessly in omitting to
state and/or misrepresenting material facts;
d. whether the members of the Class have sustained damages and, if so, what
is the proper measure of such damages; and
e. A class action is superior to other available methods for the fair and
efficient adjudication of this controversy. Since the damages suffered by
individual Class Members may be relatively small, the expense and burden of
individual litigation make it virtually impossible for the Class Members to seek
redress for the wrongful conduct alleged. Plaintiff knows of no difficulty that will
be encountered in the management of this litigation, which would preclude its
maintenance as a class action
ANSWER: Morgan Keegan denies these allegations
13. Like many individual investors and companies, Plaintiff invests on occasion in
bonds—including municipal bonds—and other securities as part of a diversified portfolio.
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ANSWER: Morgan Keegan admits that Cromeans purchased Moberly IDA bonds at
issue in this case, but lacks sufficient information to form a belief as to the truth of the remaining
allegations.
14. At all times relevant to the Complaint, Morgan Keegan was one of the nation's
largest regional investment firms and offered full service investment banking, securities
brokerage, and wealth and asset management.
ANSWER: Morgan Keegan admits these allegations.
15. Morgan Keegan’s stated mission is to advance the financial interest of its clients
through "sound financial advice, comprehensive and timely research, and responsive and
accurate service."
ANSWER:Defendant Morgan Keegan admits that it provides "sound financial advice,
comprehensive and timely research, and responsive and accurate service" to its clients.
16. Through more than 300 offices in 20 states, Morgan Keegan represents that it is
one of the nation's leading underwriters of municipal bonds and the leading underwriter for long-
term municipal bonds in many states. In a municipal bond offering, an underwriter is responsible
for all due diligence, whether performed by itself or on its behalf by agents such as underwriter’s
counsel, and can be held responsible not only for its own actions or inactions, but also for those
of its attorneys and other agents.
ANSWER: Defendant Morgan Keegan admits it has more than 300 offices in 20 states
including Missouri, but not all of those offices or states were involved in the transaction at issue
in this litigation. Defendant Morgan Keegan was the 9th leading underwriter of municipal bonds
in the country for 2010. Defendant Morgan Keegan lacks sufficient information regarding which
of "many states" are included in the allegation, or which time frames are included within this
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allegation, that would enable it to form a belief of the truth of the remaining allegations of the
first sentence. Morgan Keegan denies the allegations of the second sentence.
17. Municipal bonds are debt securities issued by states, cities, counties and other
governmental entities to fund a variety of projects such as schools, hospitals and other projects
for the public good.
ANSWER: Morgan Keegan admits these allegations.
18. Morgan Keegan stated in their offering of the bonds in question that the benefits
of municipal bonds include "a predictable stream of income" and "a generally high degree of
safety with regard to interest payment and principal repayment.”
ANSWER: Morgan Keegan admits that municipal bonds may include "a predictable
stream of income" and "a generally high degree of safety with regard to interest payment and
principal repayment" but denies that the Preliminary Official Statement or the Issuer's Official
Statement contain the quoted language. Morgan Keegan lacks sufficient information to form a
belief regarding the remaining allegations because "their offering of the bonds in question" is not
sufficiently clear.
Mamtek
19. In 2007, Mamtek International rented space in Wuyishan City, Fujian Province,
China to research the production of sucralose. Sucralose is a modified sugar molecule used as an
artificial sweetener in products like Splenda. Mamtek International received approval from the
local authorities to build a sucralose plant in Wuyishan City, and completed construction of the
plant in 2008. The facility never opened, however, due in part to environmental concerns raised
by the Chinese conservation department. Mamtek subsequently ended operations in China
without ever having produced sucralose. Bruce Cole, Mamtek International’s CEO, purchased
the patents and intellectual properties from the plant for $500,000 and sought to restart Mamtek’s
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operations in America. The failure of this and other ventures by Cole placed him in a precarious
financial position. At least one investor in Mamtek’s Chinese ventures filed suit against Cole.
Further, American Express filed a lien against Cole for an unpaid $135,000 bill. Cole also
defaulted on his $3.7 million mortgage on his home in Beverly Hills. Mamtek’s Chinese failures
and Cole’s financial problems were a matter of public record by January 2010.
ANSWER: Morgan Keegan lacks sufficient information to form a belief as to the truth
of these allegations. Morgan Keegan had no formal role or responsibilities in the development of
this project until it executed a contract with the City of Moberly to serve as underwriter on May
17, 2010.
20. By January 2010, Mamtek reformed as Mamtek USA and contacted several
states, including Missouri, about the possibility of building a sucralose plant. During this time
and thereafter, Mamtek's Agents represented that Mamtek USA was actually "Mamtek
International, Limited," an alleged Chinese company based in Hong Kong, but owned by U.S.
citizens. Mamtek's agents further represented that Mamtek International, Limited was already
operating a facility in the Fujian Province of China that was commercially producing sucralose
under the brand name "Sweet 0." Mamtek’s primary agents were Bruce A. Cole and Lt. Col.
(Ret.) Tom Smith.
ANSWER: Morgan Keegan admits that Bruce A. Cole and Lt. Col. (Ret.) Tom Smith
were agents of Mamtek, but lacks sufficient information to form a belief regarding the truth of
the remaining allegations. Morgan Keegan had no formal role or responsibilities in the
development of this project until it executed a contract with the City of Moberly to serve as
underwriter on May 17, 2010.
21. Mamtek’s agents told state economic development departments that the proposed
sucralose plant was a viable business venture as there were no sucralose manufacturers in the
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United States at that time. Mamtek claimed its proposed plant would fulfill a worldwide demand
for sucralose manufactured in the United States. In order to attract municipal investors, Mamtek
promised that its proposed plant would create new jobs and result in substantial investment into
local economies. Initially, Mamtek claimed the plant would provide 161 new jobs with an average
salary of $35,000 plus benefits. As the pitch gained steam, Mamtek’s representations grew more
grandiose. Eventually, Mamtek claimed the plant would provide 765 jobs.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations. Morgan Keegan had no formal role or responsibilities in the
development of this project until it executed a contract with the City of Moberly to serve as
underwriter on May 17, 2010.
22. In March, 2010, in response to the inquiries of Mamtek’s Agents and based upon the
representations made by those individuals, the Missouri Department of Economic Development
(“DED”) began to solicit proposals for the construction of Mamtek’s intended facility, nicknamed
“Project Sugar.”
ANSWER:Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations. Morgan Keegan had no formal role or responsibilities in the
development of this project until it executed a contract with the City of Moberly to serve as
underwriter on May 17, 2010.
23. Mamtek's agents visited several mid-Missouri cities, including the City of
Moberly, to determine the best location for the new plant. Following those site visits, Mamtek
stated that it needed a proposal within weeks because it wanted "to make a move in 45 days, so
the time line is quite short."
ANSWER:Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations. Morgan Keegan had no formal role or responsibilities in the
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development of this project until it executed a contract with the City of Moberly to serve as
underwriter on May 17, 2010.
24. On or around April 22, 2010, officials with the City of Moberly contacted
Mamtek and committed to provide successful funding for the construction and operation of a
facility for Mamtek in Moberly, Missouri.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations. Morgan Keegan had no formal role or involvement with the project
until it was engaged as underwriter on May 17, 2010.
25. On April 27, 2010, Mamtek agent Tom Smith provided additional information to
the DED and the City. This information stated, among other things, that Mamtek had been
producing and selling sucralose since December 2009. The project information also indicated
that trade secrets were shared with Ramwell International, a company purportedly run
exclusively by shareholders of Mamtek. Ramwell International was purportedly responsible for
the intellectual property-related activities of Mamtek. Mamtek and its Agents further
represented that purchase contracts existed with a Chinese company called Xibo Pharmaceutical
Group ("Xibo”). According to Mamtek, Xibo had contracted to purchase enough sucralose to
cover the next five years of production from the Moberly plant.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations. Morgan Keegan had no formal role or responsibilities in the
development of this project until it executed a contract with the City of Moberly to serve as
underwriter on May 17, 2010.
26. On April 30, 2010, Mamtek selected Moberly as the site for its proposed
sucralose facility, and the process was started to get Project Sugar off the ground.
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ANSWER:Morgan Keegan lacks sufficient information to form a belief regarding the
truth of the allegation that Mamtek selected Moberly as the site for its proposed sucralose facility
on April 30, 2010. Morgan Keegan denies that April 30, 2010 was the date that "the process was
started to get Project Sugar off the ground." Morgan Keegan had no formal role or
responsibilities in the development of this project until it executed a contract with the City of
Moberly to serve as underwriter on May 17, 2010.
27. On May 17, 2010, Bruce Cole incorporated a for-profit corporation in
Delaware called "Mamtek U.S., Inc." ("Mamtek U.S."). On June 2, 2010, Cole registered
Mamtek U.S. to transact business in the State of Missouri as a foreign for-profit corporation.
Mamtek U.S. listed as its principal place of business the address of an attorney's office in Los
Angeles, California. At times, Mamtek represented that Mamtek U.S. was a wholly-owned
subsidiary of Mamtek, while at other times, Mamtek's Agents represented that Mamtek U.S.
was an "affiliate" of Mamtek.
ANSWER: Defendant Morgan Keegan admits the allegations of the first sentence to the
extent they are consistent with Mamtek U.S. incorporation documents, which are the best
evidence of Mamtek's date and place of incorporation. Morgan Keegan admits the second
sentence of paragraph 27 to the extent it is consistent with Mamtek U.S. business records filed
with the Missouri Secretary of State, which are the best evidence of the date and time of Mamtek
U.S. registration to transact business in Missouri. Defendant Morgan Keegan lacks sufficient
information to form a belief regarding the truth of the allegations of the third sentence of
paragraph 27.
Morgan Keegan and the Bonds
28. Mamtek did not have the operating capital to fund construction and development
of Project Sugar. In order to finance the Project, Mamtek relied on Missouri state tax incentives
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and on bonds subsequently issued by the City. The State of Missouri awarded Mamtek $7.6
million in Missouri Quality Jobs Program tax credits and $6.8 million in Missouri Build program
tax credits. Missouri also provided $2 million in Community Development Block Grant
Industrial Infrastructure Program grant funds; $800,000 in funding for job training; and $368,000
for employment recruitment and referral services.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of the allegations of the first two sentences of paragraph 28. Morgan Keegan admits the
remaining allegations.
29. Additional funding was obtained through bonds issued by the Industrial
Development Authority of the City of Moberly (the "Authority"), acting under Chapter 349 of
the Revised Statutes of Missouri. Three series of bonds in the total amount of $39 million were
issued by the Authority (the "Bonds"):
a. Series A taxable Bonds in the amount of $8,440,000;
b. Series B tax-exempt Bonds in the amount of $3,025,000, and
c. Series C tax-exempt Bonds in the amount $27,535,000.
ANSWER:Morgan Keegan denies that the funding alleged in paragraph 29 was
"additional funding" to the funding alleged in paragraph 28. Defendant Morgan Keegan admits
that funding was obtained through bonds issued by the Authority in the amounts alleged.
30. Morgan Keegan was selected as the underwriter for the Bonds on May 17, 2010.
As the underwriter, Morgan Keegan, by and through its agents, was responsible for preparing the
Official Offering Statement, for purchasing the Bonds from the issuer (the Authority), for
locating prospective purchasers, and for selling the Bonds to individual bondholders (such as
Plaintiff). Morgan Keegan was paid over $400,000 for its role as the Bond underwriter. This
payment came out of the proceeds from the sale of the Bonds to Plaintiff, members of the
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Plaintiff class and others.
ANSWER: Morgan Keegan admits the first sentence of paragraph 30. Regarding the
second sentence, Morgan Keegan's duties as an underwriter are established in the contract
between Morgan Keegan and the City of Moberly and Morgan Keegan denies any allegations
inconsistent with the obligations imposed by the contract. Morgan Keegan admits the third
sentence of paragraph 30. Morgan Keegan denies the fourth sentence of paragraph 30.
31. On July 15, 2010, the City approved issuance of the Bonds through the
Authority.
ANSWER:Morgan Keegan admits these allegations.
32. As underwriter, Morgan Keegan had an obligation to conduct a due diligence
investigation. More specifically, Morgan Keegan was required to:
a. Conduct a due diligence review of the organization, operations, and
financial condition of Mamtek in its preparation of the Offering Statement.
b. Disclose to potential purchasers of securities information that is material
to the ability of purchasers to make an informed investment decision.
c. Ensure the accuracy and completeness of any information that potential
investors might consider material in making a decision to purchase the Bonds.
d. Use reasonable care to form a belief as to the accuracy and adequacy of
the information provided for inclusion in the official statement of an investment.
ANSWER: Defendant Morgan Keegan admits it has an obligation to conduct due
diligence regarding the Moberly bond issuance. The remaining allegations
constitution legal conclusions about the nature of this obligation which require no
responsive pleading and are a subject of dispute in the litigation. To the extent a
response is required, these allegations are denied.
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33. In furtherance and recognition of those obligations, Defendants began a due
diligence “effort” shortly after being retained as underwriter. On May 20, 2010, Defendants
contacted Bond Counsel to facilitate fact-gathering and to “initiate their due diligence process”
for the bond offering documents.
ANSWER: Morgan Keegan admits it conducted due diligence after it was retained as
underwriter on May 17, 2010. Morgan Keegan admits that it communicated with Tom
Cunningham of Cunningham, Vogel and Rost on May 20, 2010 as part of its work as underwriter
to facilitate fact gathering. Morgan Keegan denies the remaining allegations of paragraph 33.
34. On May 28, 2010, Defendants sent a “Due Diligence Questionnaire” to Mamtek.
The Due Diligence Questionnaire sought detailed organizational, operational, and financial data
which, if provided, would have elicited crucial information about the problems inherent in
Project Sugar. The questionnaire, according to Defendants, was needed to enable Morgan
Keegan to exercise “reasonable care.”
ANSWER: Morgan Keegan admits that Mark Boatman of Armstrong Teasdale sent a
Due Diligence Questionnaire and Memorandum dated May 28, 2010 to Mamtek U.S. Inc. in
order to obtain information related to Mamtek and the project. Morgan Keegan admits that the
questionnaire sought detailed organizational, operational. And financial data regarding Mamtek
U.S. Morgan Keegan admits that the memorandum accompanying the questionnaire states that
"The information requests made by the Underwriter and Underwriter's Counsel during this
transaction are necessary to enable the Underwriter to exercise such reasonable care." Morgan
Keegan denies the remaining allegations of this paragraph.
35. The Due Diligence Questionnaire was, upon information and belief, never
completed by Mamtek. In early June of 2010, Defendants actually told Mamtek to essentially
ignore the questionnaire and instead focus on revising, commenting on, and completing the
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Preliminary Offering Statement; the Due Diligence Questionnaire could just be mailed in shortly
before the Official Statement was printed. Upon information and belief, Defendants never
received the Due Diligence Questionnaire, and made no follow-up efforts to otherwise obtain the
information requested therein.
ANSWER: Morgan Keegan denies these allegations.
36. Defendants admittedly did not complete a thorough due diligence investigation
of Project Sugar, Mamtek, or the factual statements set forth in the Offering Statement. Rather,
Defendants “spent [their] time focusing on the credit in the deal.” Aside from “Googling” the
company, Defendants did nothing but transcribe into the Offering Statement the statements given
to them by Mamtek and its Agents.
ANSWER: Morgan Keegan denies these allegations.
37. Although Defendants corresponded with Mamtek in order to develop the factual
statements set forth in the Offering Statement, none of those communications asked the
obvious questions, such as whether the information being provided by Mamtek was accurate.
Indeed, the correspondence between Mamtek and Defendants indicates that Defendants were
essentially serving as Mamtek's scrivener. At no point during their underwriting process did
Defendants establish an accuracy check to verify that the statements included in the Offering
Statement by Mamtek and its agents were accurate and did not omit any information that
potential investors might consider material in making a decision to purchase the Bonds.
Instead, Defendants relied on others, such as the City, to purportedly complete a due diligence
investigation into Mamtek and Project Sugar.
ANSWER: Morgan Keegan admits it relied on others, including the City of Moberly, the
Industrial Development Authority, and Cunningham Vogel & Rost, in connection with the due
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diligence it conducted in its role as underwriter. Morgan Keegan denies the remaining
allegations of this paragraph.
38. As a result of its failure to undertake a reasonable due diligence investigation,
Morgan Keegan did not discover the truth concerning Mamtek’s operations in China.
Defendants' failure to take any action, however simple, to verify the accuracy of the Offering
Statement resulted in numerous material misrepresentations and omissions of material fact in
both the Offering Statement and in Morgan Keegan's oral statements to Plaintiff, members of the
Plaintiff class, and others when soliciting Bond sales.
ANSWER: Morgan Keegan denies these allegations.
Third-Party Investigations Concerning Mamtek Caught What Morgan Keegan Missed
39. Defendants were the entities responsible for performing due diligence on the
Bonds but they were not the only groups investigating Mamtek. In early April, 2010, DED
officials contacted Defendant Armstrong Teasdale regarding Mamtek. Armstrong Teasdale
provides trade promotion services to the DED in China and represents the DED in China.DED
officials had been unable to locate financial background information related to Mamtek, and
thus, it asked Armstrong Teasdale to initiate an investigation of Mamtek in China. That request
was directed to Mr. Edward Li, an employee of Armstrong Teasdale and Maria Desloge, a
Manager in the St. Louis office of Armstrong Teasdale.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
allegations of this paragraph.
40. On April 13, 2010, Armstrong Teasdale, through its employee Mr. Li,
reported back to DED that Mamtek did not have an operating sucralose plant in China, and
that Mamtek never began manufacturing in China because of protests from local
conservation groups. Additional attempts by Armstrong Teasdale to locate the "operating"
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Mamtek plant in China only led to corporate office buildings, whose relationship to Mamtek
appeared doubtful. At the conclusion of its investigation, Armstrong Teasdale had been
unable to locate any Mamtek facility in China that was currently producing, or had ever
commercially produced, sucralose.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of the allegations of this paragraph.
41. The fact that an internal on-the-ground investigation in China had been unable
to locate an actual operating Mamtek sucralose facility was known by many, if not all, deal
insiders such as the City, DED and Armstrong Teasdale, which was acting as agent and
representative for both the DED and Morgan Keegan at that time. Had Defendants engaged in
any form of due diligence with respect to information and inquiries within their ability, they
could have easily obtained this information, which was held by readily-accessible insiders.
Further, the information obtained and held by Defendant Armstrong Teasdale and various
partners of that Defendant are deemed to be known by and are imputed upon the partnership
generally pursuant to the Missouri partnership laws applicable to Armstrong Teasdale as a
limited liability partnership.
ANSWER: To the extent Morgan Keegan is included in this allegation as a "deal
insider," it denies the allegations of the first sentence of this paragraph. Morgan Keegan lacks
sufficient information regarding the knowledge of other so-called "deal insiders" to form a belief
regarding the truth of the allegations of the first sentence. Morgan Keegan denies the allegations
of the second sentence of this paragraph. The third sentence of this paragraph sets forth a legal
conclusion to which no responsive pleading is required. To the extent a responsive pleading is
required, Defendant Morgan Keegan denies this allegation.
The Offering Statement
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42. On July 23, 2010, the official Bond Offering Statement prepared by Morgan
Keegan, by and through its agent Armstrong Teasdale, was published and disclosed to Morgan
Keegan clients and prospective leads, as part of a limited group of persons. The Bonds had been
purchased by Morgan Keegan from the issuer, and were resold to buyers like the Plaintiff class
members. Thus, Morgan Keegan was acting as both a seller and as a broker-dealer.
ANSWER: Defendant Morgan Keegan admits that the Issuer's Official Statement is dated
July 23, 2010 and that it was disclosed to Morgan Keegan clients. Morgan Keegan denies that it
was disclosed to "a limited group of persons." Morgan Keegan denies that the bonds had been
purchased by Morgan Keegan or resold to buyers on July 23, 2010. The remaining allegations
constitute a legal conclusion to which no responsive pleading is required. To the extent a
responsive pleading is required, Morgan Keegan denies these allegations.
43. Defendants’ Offering Statement states, in part:
a. Mamtek "is a Delaware corporation and is the United States affiliate of
Mamtek International, a Hong Kong corporation ("International"), which is
founded, principally owned, and operated by U.S. citizens and U.S. permanent
residents with expertise in manufacturing, engineering, food science, investments,
procurement, and sales on a global level.
b. Mamtek operates a fully-functional sucralose production facility in Fujian
Province, China.
c. To date, only two companies of which Mamtek is one have succeeded in
inventing, optimizing, and protecting a predictable and scalable process for
sucralose manufacture.
d. To deliver on current and pending contracts, Mamtek is moving rapidly to
scale production.
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e. Mamtek's unique manufacturing processes neither require nor produce any
hazardous substances to manage during production and result in no hazardous
waste products for disposal.
f. Mamtek has instituted top-tier intellectual property protection systems and
processes in order to protect its market position as customer commitments grow.
g. Mamtek's market position is made possible by its proprietary technology
and manufacturing processes.
h. The Company expects to bring on-line a second set of five production
lines in 2011, followed by ten new production lines in 2012. As with the initial
five lines in the factory, expansion will be triggered by pre-selling a majority of
output for any set of new lines.”
In addition to these misrepresentations, the Official Statement contained many material
omissions including:
f. Mamtek had no independently verified or audited financial records at the
time the Bonds were issued;
g. Mamtek had only one known customer, Xibo Pharmaceuticals;
h. The contract with Xibo amounted to approximately 85% of Mamtek’s
estimated value;
i. No entity had checked to determine if Xibo was a credible buyer or
indeed if it even existed;
j. The contract with Xibo was a forgery that purported to require the
delivery of up to 25 tons of sucralose per month to a hotel room;
k. Mamtek International was unable to make the revenue payments which
purportedly secured the contract;
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o. The information contained in the report of Armstrong Teasdale’s agent
Edward Li, including that Mamtek had never begun operating in China due to
environmental concerns;
p. Mamtek U.S. was insolvent by the time the Bonds were issued;
q. Valuation experts relied on by Defendants opined that the remaining
intellectual property and trade secrets could be ultimately patented in a narrow
and valueless form; and
r. Defendants had taken no steps to independently verify any of the
representations of Mamtek’s agents before issuing the Bonds.
ANSWER: Morgan Keegan denies that the Issuer's Official Statement is the
"Defendants' Offering Statement," because as a matter of fact and law the representations in the
Official Statement are those of the Issuer, not those of the underwriter Morgan Keegan. As to the
omissions allegations of this paragraph and further denies that this information was not available
to purchasers who requested it. As to the misrepresentations portion of this allegation, Defendant
Morgan Keegan admits that the Issuer's Official Statement dated July 23, 2010 addresses the
issues set forth in that portion above. Defendant Morgan Keegan further answers that the Issuer's
Official Statement must be read and understood in its entirety, and Morgan Keegan denies these
allegations to the extent they are taken out of context from the Issuer's Official Statement and do
not include all relevant disclosures and warnings about the contents of the Official Statement.
These disclosures and warnings about the contents of the Official Statement include but are not
limited to the following (with emphasis in the original):
(a) "THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION;"
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(b) "THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION;"
(c) "THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION;"
(d) "This [portion] is only a brief description of certain information contained in this
Official Statement and is qualified in its entirety by reference to the more
complete and detailed information contained in the entire Official Statement,
including the cover page and appendices hereto and the documents summarized or
described herein. A full review should be made of the entire Official Statement."
(e) "The financial feasibility of the Project depends in part upon the operation of the
Project as a sucralose manufacturing facility throughout the term of the Bonds. If
the Company fails to occupy and operate the Project, there may be insufficient
revenues to make Basic Payments to the City or enable the City to pay the
principal of and interest on the Bonds."
44. Morgan Keegan sent a bullet point memo to investors summarizing the Official
Statement. The bullet point memo and the Official Statement are substantially similar with
respect to the misrepresentations and omissions each contain, including that:
a. the Bonds’ security included the patents for processing sucralose;
b. Mamtek International was operating a fully-functional plant that had a
primary product known as the Sweet-O brand of sucralose;
c. Mamtek had current and pending contracts.
In addition to these misrepresentations, the bullet point contained all of the same material
omissions as the Official Statement including:
d. Mamtek had no independently verified or audited financial records at the
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time the Bonds were issued;
e. Mamtek had only one known customer, Xibo Pharmaceuticals;
f. The contract with Xibo amounted to approximately 85% of Mamtek’s
estimated value;
g. No entity had checked to determine if Xibo was a credible buyer or indeed
if it even existed;
h. The contract with Xibo was a forgery that purported to require the delivery
of up to 25 tons of sucralose per month to a hotel room;
i. Mamtek International was unable to make the revenue payments which
secured the contract;
j. The information contained in the Li report, including that Mamtek had
never begun operating in China due to environmental concerns;
k. Mamtek U.S. was insolvent by the time the Bonds were issued;
l. Pellegrino had opined that the remaining intellectual property and trade
secrets could be ultimately patented in a narrow and valueless form; and
m. Morgan Keegan had taken no steps to independently verify any of the
representations of Mamtek’s agents before issuing the Bonds.
The bullet point only included a single misrepresentation not included in the Official
Statement, namely that the Bonds were secured by the appropriation pledge of the City of
Moberly.
ANSWER: Morgan Keegan denies that a bullet point memo was sent to investors. To
the best of Morgan Keegan's knowledge, Plaintiff Cromeans is the only investor who received a
"bullet point" memo, which was for internal use only and was not supposed to be distributed
outside of Morgan Keegan. Morgan Keegan denies that any of the alleged representations or
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omissions in this allegation were material to any investor's decision to purchase. In addition,
Morgan Keegan states that any representations or alleged omissions must be considered in the
context of the other documents, including the official statement, which were available to
Cromeans and all other investors.
45. As stated above, Defendants did no independent research or investigation to
determine whether these facts were true, accurate, or complete. Defendants’ failure is critical
because Defendants failed to discover (and therefore, disclose to Plaintiff and the Plaintiff
class) that there was no operating Mamtek sucralose plant in China. Indeed, they expressly
told Plaintiff in writing (and orally, with respect to Morgan Keegan's sales representations)
that such a plant existed, when soliciting Plaintiff’s and other class members purchase of the
Bonds.
ANSWER: Morgan Keegan denies the allegations of the first two sentences of this
paragraph. Morgan Keegan admits that the Official Statement states that "Mamtek operates a
fully-functional sucralose production facility in Fujian Province, China" and that Mamtek and its
counsel swore that statement was truthful and accurate and not misleading. Morgan Keegan lacks
sufficient information to form a belief regarding the truth of the remaining allegations.
46. There can be no doubt that the questions surrounding Mamtek's China facility
were material and important because Morgan Keegan officials have now testified that the
absence of an operating Mamtek sucralose plant in China is an "important fact" that would have
resulted in further investigation of Mamtek and the Project. But because Defendants did nothing
to verify the accuracy of these facts, no further investigation of the China plant ensued, the
Bonds were sold, and Plaintiff and the class have been damaged as a direct result of their
purchase of the Bonds.
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ANSWER: Morgan Keegan admits that "the absence of an operating Mamtek sucralose
plant in China is an 'important fact' that would have resulted in further investigation of Mamtek
and the Project." Morgan Keegan denies that "there can be no doubt that the questions
surrounding Mamtek's China factory were material and important." Morgan Keegan denies the
remaining allegations of this paragraph.
47. The existence of an operating China facility was not Morgan Keegan's only
misrepresentation. Defendants also represented that Mamtek had pledged valuable collateral
as security for the Bonds in the event of a default by Mamtek (the "Backstop"). The Offering
Statement and Bond Documents indicated that Mamtek provided several forms of collateral
("Security") to the City to guarantee the Bonds. Although not publicly available information at
the time of the Bond offering, Plaintiff now understand that the Security for the Backstop
primarily consisted of: (1) alleged intellectual property related to producing Sweet-O ("IP"),
and (2) a purported sales contract with a company referred to as "Xibo Pharmaceutical Group"
("Xibo").
ANSWER: Morgan Keegan denies the first sentence of this paragraph and denies making
any misrepresentations. Defendant Morgan Keegan admits that the Issuer's Official Statement
addresses the collateral ("Security") issue and that Mamtek provided several forms of collateral
("Security") to the City as financial support for the bonds, but asserts that it must be read and
understood in its entirety, and Morgan Keegan denies these allegations to the extent they are
taken out of context from the Issuer's Official Statement and do not include all relevant warnings
and disclosures about the contents of the Official Statement.
48. Prior to issuing the Bonds, Pellegrino & Associates, LLC ("Pellegrino"), a
boutique valuation company, was retained to value Mamtek's IP and the Xibo contract in order
to determine whether the Security had sufficient value to protect the interests of the City and,
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ultimately, the Bond purchasers in the event that Mamtek defaulted on its obligations to pay
down the Bonds. In its Report, Pellegrino valued the Xibo contract at almost $45,000,000.00.
Pellegrino valued the Mamtek's IP at more than $7,000,000.00.
ANSWER:Defendant Morgan Keegan admits that Pellegrino & Associates, LLC, was
retained by the City of Moberly to value certain Mamtek assets prior to the bond issuance.
Morgan Keegan lacks sufficient information to form a belief regarding the remaining allegations
of the first sentence. Morgan Keegan admits that Pellegrino's report valued certain assets for
Moberly, and the complete report is the best evidence of its contents. Morgan Keegan denies the
allegations of the second sentence to the extent it is inconsistent with the contents of the Report.
49. Although the actual "valuation" figures for the Security were not included within
the Offering Statement or Bond Documents, Morgan Keegan cited the Pellegrino report in its
Offering Statement, noting that Pellegrino had valued the Security and the Security was being
held in escrow so that, "[I]n the event of default by (Mamtek), the escrow agent would release
the Security to the City, thereby allowing the City to provide for the continued operation of the
Project.”
ANSWER: Morgan Keegan admits that the quoted sentence regarding default from the
Official Statement reads in full as follows, "In the event of a default by the Company, the escrow
agent would release the Security to the City, thereby allowing the City to provide for the
continued operation of the Project and/or sell, license or assign some or all of the Security for the
term provided in the Guaranty Agreement." Morgan Keegan further answers that the Issuer's
Official Statement must be read and understood in its entirety, including all relevant warnings and
disclosures about its contents. Morgan Keegan denies the remaining allegations of this paragraph.
50. The purported Xibo contract allegedly involved a purported pre-sale of up to 25
metric tons per month of Mamtek's sucralose output over a five-year period. No minimum
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purchase requirement was established by the alleged agreement.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations.
51. Defendants did not investigate the validity of the Xibo contract, or even seek to
determine whether Xibo is an actual company, and did not independently investigate the
validity or value of the IP. As to the three-page Xibo sales contract, which was "valued" at
almost $45,000,000, it does state that Mamtek agrees to deliver, and Xibo agrees to accept,
shipments of Mamtek’s sucralose every month for five years. However, the address listed for
Xibo in the contract to which Mamtek was to deliver up to 25 tons of sucralose per month
appears to actually be Room 2003 in the Huiyan Service Hotel in downtown Beijing.
ANSWER: Morgan Keegan denies the allegations of the first sentence and asserts that
the City of Moberly and the Moberly IDA investigated the validity of the XIBO contract and the
validity and value of the IP and Morgan Keegan reasonably relied upon their investigation.
Morgan Keegan lacks sufficient information to form a belief as to the truth of the remaining
allegations.
52. Although the Xibo contract lists Chaoyang District as the address of Xibo, the
Bond Documents state that Xibo is in Shandong Province, hundreds of miles from Chaoyang
District. There is no Xibo Pharmaceutical Group listed on any Chinese business website, and
indeed, Xibo Pharmaceutical Group does not appear to be an actual company organized or
incorporated in China. In fact, The Xibo contract was executed on February 26, 2010, after
Mamtek had already been representing to third parties, including Missouri officials, that
Mamtek had pre-sold the entire production of sucralose that could be produced by the planned
Moberly plant for the first five years.
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ANSWER: Morgan Keegan lacks sufficient information to form a belief as to the truth of
these allegations.
53. The IP which was “valued” at $7,000,000 allegedly included several patent
applications and a "cookbook" that provided step-by-step instructions on how to reproduce a
commercial production line for sucralose, along with instructions on how to create Mamtek's
Sweet-O brand of sucralose, This intellectual property is the same information Cole purchased
from his Chinese operations for $500,000. This information was later deemed “worthless” by
Jeff Howard, Mamtek’s general manager because Mamtek’s manufacturing process posed
“significant” environmental concerns.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations.
54. Contrary to Defendants’ representations, the IP has, and likely had, little
intrinsic value, as the patent applications were of uncertain status, and the company's position
within the global sucralose market was, in reality, non-existent. Indeed, Morgan Keegan had
access to detailed information that demonstrated, or at least strongly suggested, that the IP was
of questionable value and nature and that Mamtek occupied a questionable-at-best status within
the global sugar substitute markets.
ANSWER: Morgan Keegan denies these allegations.
55. In spite of this information, and the "red flags" that should have been raised by
such information, Defendants affirmatively represented in both the Offering Statement and in
discussions during which Morgan Keegan solicited and sold the Bonds at issue the following:
a. “Patents applications are filed in the United States as well as major
nations in the Americas, Europe, and Asia; favorable guidance has been issued
from the United States Patent and Trademark office, advising that first patents
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will be granted within months."
b. "The Company and its international patent counsel have reviewed
current patent filings worldwide and have concluded that T&L [the primary
sucralose manufacturer throughout the world] and Mamtek are the only
significant global competitors for the near and medium term."
ANSWER: Morgan Keegan admits that the quoted sentences can be found in the Issuer's
Official Statement and that they were sworn to be complete, accurate, and not misleading by
Mamtek and its counsel. Morgan Keegan further answers that the Issuer's Official Statement
must be read and understood in its entirety, including all relevant warnings and disclosures about
its contents. Morgan Keegan denies the remaining allegations of this paragraph.
56. In actuality, Defendants made no efforts to objectively or reasonably determine
what guidance, if any, the USPTO had made with respect to any filed patent applications with
respect to the IP. Further, Defendants knew that patent offices have rejected Mamtek
International's claimed inventions to date; however, Defendants failed to either investigate the
matters further or advise any putative investors regarding the truth of the matters relating to the
IP. Defendants knew that Mamtek was not one of two manufacturers/global competitors in the
worldwide sucralose industry in either the near or medium term, as it affirmatively stated to
investors, including Plaintiff. Indeed, Defendants had information indicating that there were a
number of sucralose manufacturers in China, India, and throughout Asia that were significant
competitors in the near and medium term.\
ANSWER:Morgan Keegan admits that it did not undertake to contact the USPTO and
states that any such undertaking would have been beyond the scope of its responsibilities as an
underwriter. Morgan Keegan denies that it failed to act reasonably as underwriter. Morgan
Keegan denies the remaining allegations.
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57. Had Defendants engaged in actual due diligence, they could have easily obtained
all of this information which objectively calls into question the existence and viability of the
purported Backstop, which was a material fact for putative bond purchasers, including Plaintiff
and other members of the Plaintiff class, to consider with respect to the Bonds.
ANSWER:Morgan Keegan denies these allegations.
58. Morgan Keegan officials have testified that the underlying purpose of a bond-
financed project is important to Morgan Keegan's decision about whether it acts as the bond
underwriter.
ANSWER:Morgan Keegan admits these allegations.
59. That purpose, and the credibility and validity of the underlying project, is also
important and material to bondholder's decision—such as that made by Plaintiff and the Plaintiff
class—to purchase a bond.
ANSWER:Whether facts are material is a legal conclusion which is the subject of dispute
in this litigation and no responsive pleading is required. To the extent a responsive pleading is
required, Morgan Keegan denies these allegations.
60. There were facts available to Defendants that should have alerted them to the fact
that Mamtek lacked a viable plan and vision for Project Sugar, which is evident from the
changing nature of the Project in the months leading up to the Bonds being issued.
ANSWER: Defendant Morgan Keegan denies these allegations.
61. One clue was constantly changing claims Mamtek made concerning the scope of
the project. In January, 2010, Mamtek had indicated it would need "about $3-5 M in
loans/grants to get going." But, by late January, 2010, Mamtek's agents were telling DED
employees that Mamtek would employ more than 100 employees, would require 15-20,000
square feet of work space, but would now need "about $9M" to become operational. A few
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months later, Mamtek was stating that it would create 161 new jobs, 60,000 square feet of work
space and need $20 million in funding. By March, 2010, Mamtek was also stating in other
promotional materials that it was an “international manufacturer of sucralose, currently
operating in China” that had “presold production” of enough sucralose to support construction
of a new sucralose plant in Missouri, and would require “approximately $35M in a blend of
grants, no-interest and subsidized loans, and tax credits.” Mamtek also stated that it would need
a proposal within weeks because it wanted “to make a move in 45 days, so the time line is quite
short.” By April, 2010, Mamtek’s agents were indicating that Mamtek could ultimately require
more than 420,000 square feet of work space and create up to 750 jobs. The nebulous and
shifting nature of the cost and magnitude of Project Sugar did not escape some deal insiders at
the DED, who described aspects of the Project as “farfetched”, “fishy”, “crap” and suggested
that “this level of change cannot be based on any facts.” In April 2012, one DED employee,
Grey Jackson, compared Mamtek’s sales pitch to an internet scam, and asked, “Isn’t phishing
illegal?” The documents establishing this shifting Project scope, while not readily available to
potential Bond purchasers, were readily available to Defendants, but, as noted above, Defendants
did not conduct due diligence because they were only concerned about, “the credit in the deal”
and, instead, acceded to Mamtek’s desires to (at the perspective bondholders’ expense) keep the
deal closing timelines “quite short.” Further, a review of the financial situation of Mamtek’s
agents would have revealed that they were in poor financial health, unlikely to be agents of a
successful Chinese company.
ANSWER: Morgan Keegan lacks sufficient information to form a belief about the first
eight sentences of this paragraph, as they all address facts that occurred prior to Morgan Keegan's
formal role or responsibilities, which commenced when it signed a contract with the City of
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Moberly to serve as underwriter for the bonds on May 17, 2010. Morgan Keegan denies the final
two sentences of this paragraph.
Mamtek’s Demise
62. On or about July 24, 2010, construction on Project Sugar began in accordance
with the Bond Documents. Over the course of the following 12 months, Mamtek continued some
elements of construction, furnishing, and equipping of the Project.
ANSWER: Morgan Keegan denies that construction began on July 24, 2010. Morgan
Keegan admits the remaining allegations of this paragraph.
63. On or about August 1, 2011, Mamtek failed to pay its $3.2 million bond payment
to the City due under the Management Agreement. As a result, the City failed to make its
corresponding bond payment to the Bond Trustee. On September 1, 2011, the Bond Trustee filed
a notice stating that the required bond payment was not made in accordance with the Bond
Documents. The Bond Trustee thereafter paid the payment to the bondholders on the debt service
reserve funds, pursuant to the Bond documents. On September 2, 2011, the City provided written
notice to Mamtek of the default under the Bond Documents. Shortly after the default, Mamtek
terminated its employees. Mamtek's Moberly plant has been closed since that time and has
abandoned the Project to the Authority, City, and Bond Trustee.
ANSWER: Morgan Keegan admits the first sentence of this paragraph. Morgan Keegan
denies the second sentence of this paragraph. Morgan Keegan admits the third sentence of this
paragraph. Morgan Keegan lacks sufficient information to form a belief regarding the truth of the
remaining allegations of this paragraph.
64. On September 6, 2011, the City refused to appropriate funds from its general
revenue in order to make Bond payments.
ANSWER:Morgan Keegan admits these allegations.
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65. On September 14, 2011, Mamtek's acting plant manager for the Project stated
that completion of the Project could cost up to an additional $44.5 million. He further claimed
that the escrowed intellectual property of Mamtek—which Mamtek represented was worth
millions—was of little value.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth of these allegations.
66. On October 5, 2011, the City provided written notice that it had re-entered and
taken possession of the Project pursuant to the Management Agreement. The City also indicated
its intent to terminate the Management Agreement on October 27, 2011, unless Mamtek cured
existing defaults before that date. On October 27, 2011, the City terminated the Management
Agreement.
ANSWER: Morgan Keegan lacks sufficient information to form a belief regarding the
truth for these allegations.
67. Mamtek U.S. is insolvent and is now in bankruptcy proceedings. There is
currently no active construction at the Project, the site is idle and there is no foreseeable
completion plan or date for the Project. This is the second unfinished factory Cole and Mamtek
left in their wake. The Bonds are, upon information and belief in default and are either worthless
or far less valuable than what was indicated, and what would have been, had the Project been as
represented by Morgan Keegan and its agent Armstrong Teasdale.
ANSWER: Morgan Keegan admits that Mamtek US is now in bankruptcy proceedings,
but lacks sufficient information to form a belief regarding the allegation that it is insolvent.
Morgan Keegan lacks sufficient information to form a belief regarding the truth of the
allegations of the second and third sentences of this paragraph. Morgan Keegan admits that the
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bonds are in default, but denies the remaining allegations of the fourth sentence of this
paragraph.
CLAIMS
Count 1 – Negligent Underwriting
68. Plaintiff restates and realleges the paragraphs set forth above of his Petition and
incorporate the same by reference as through fully set forth herein.
ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs above
and incorporates the same by reference.
69. Morgan Keegan, as underwriter for the project was ultimately responsible to
conduct all due diligence concerning the Bonds. Instead, Morgan Keegan did nothing to verify the
accuracy of statements made by Mamtek’s agents and relied solely on work done by ratings
agencies and other third-parties. As a result, Morgan Keegan missed several red flags that were
easily discovered by other entities researching Mamtek at the same time as Morgan Keegan.
ANSWER: Morgan Keegan admits it conducted due diligence after it was engaged as
underwriter for the bonds. The remaining allegations of this paragraph are denied.
70. Morgan Keegan’s negligent underwriting caused Plaintiff and other similarly
situated class members to suffer damages including the loss of their investment.
ANSWER: Morgan Keegan denies these allegations.
WHEREFORE, Plaintiff demands judgment against Defendants for damages, including
actual and punitive, in such a sum as a jury shall reasonably assess plus interest, attorney fees,
and all costs of this proceeding.
Count 2 – Negligent Misrepresentations and Omissions
71. Plaintiff restates and realleges the paragraphs set forth above of his Petition and
incorporate the same by reference as through fully set forth herein.
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ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates them by reference here.
72. In preparing and delivering to Plaintiffs the Offering Statement, which was dated
and issued on July 23, 2010, Morgan Keegan and Armstrong Teasdale as agents and
underwriter’s counsel for Morgan Keegan, supplied untrue and misleading information regarding
Project Sugar, Mamtek, and various other issues pertaining to the “Backstop” Security.
ANSWER: Morgan Keegan denies these allegations.
73. As the underwriter of the Bonds, Morgan Keegan intended to purchase the Bonds
from the issuer and resell them to a limited group of prospective buyers (like Plaintiff and other
members of the Plaintiff class) as part of Morgan Keegan’s normal business operations.
ANSWER: Morgan Keegan admits it intended to purchase the bonds from the issuer and
resell them as part of its normal business operations. Morgan Keegan denies the remaining
allegations of this paragraph.
74. As the underwriter, as well as the direct seller, of the bonds at issue, Morgan
Keegan owed foreseeable, targeted Bonds investors like Plaintiff and the other class members a
duty. That duty included the obligation to exercise due and reasonable care and to act as a
"devil's advocate" in investigating and questioning the various facts, circumstances, and
representations made with respect to Project Sugar and the bond financing plan, with its
underlying "Backstop.”
ANSWER:Morgan Keegan denies these allegations.
75. Defendant Armstrong Teasdale, as underwriter's counsel and agents of Morgan
Keegan, undertook and owed a duty to foreseeable third parties, including the potential bond
investors such as Plaintiff and the class, to exercise due and reasonable care in performing their
part of the due diligence responsibilities in this bond offering and in supplying information in the
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Offering Statement that they wrote, controlled, and forwarded for use by Morgan Keegan to
directly solicit and sell the bonds to its clients who were prospective municipal bond purchasers,
such that the information supplied was not inaccurate or misleading as to important and material
facts.
ANSWER:Morgan Keegan denies these allegations.
76. Morgan Keegan violated its duty to Plaintiff and other prospective bond
purchasers and subsequent bondholders, in failing to exercise due and reasonable care in
investigating and questioning the various facts, circumstances, and representations made with
respect to Project Sugar and the bond financing plan, with its underlying "Backstop.”
ANSWER:Morgan Keegan denies these allegations.
77. Defendant Armstrong Teasdale violated its duties to foreseeable third parties,
including the potential bond investors such as Plaintiff, when it failed to exercise due and
reasonable care in investigating and questioning the various facts, circumstances, and
representations made with respect to Project Sugar and the bond financing plan, with its
underlying "Backstop." These breaches of their duties were particularly compounded by the fact
that neither advised nor supplied information crucial information that was already within their
knowledge base that there was a very legitimate question of whether Project Sugar's principals
were even operating a 60 ton commercial sucralose plant in China. Those concerns were directly
raised and communicated by Mr. Li, an employee and agent of Armstrong Teasdale, who was
employed and operating in mainland China at times material.
ANSWER: Morgan Keegan denies these allegations.
78. As a result of Defendants' breach of their duties, the statements made by them
were false and misleading and omitted the material information described in paragraph 43–44 of
the Complaint.
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ANSWER: Morgan Keegan denies these allegations.
79. The information provided by Defendants, as set forth above, was intentionally
provided by Defendants in the course of their business, and for their own pecuniary interests.
Further, the true nature regarding these statements and omissions were material to potential bond
purchasers, including Plaintiff. 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 Plaintiff.
ANSWER: Morgan Keegan denies these allegations.
80. Defendants’ fraudulent activity is so pervasive that it goes to the very existence
of the Bonds and the validity of their presence on the market. Accordingly, Plaintiff’s reliance on
the misrepresentations and omissions provided by Defendants may be presumed under a fraud on
the market theory because, among other things, fraud created the market for the Bonds. See, e.g.,
In re NationsMart Corp. Sec. Litig., 130 F.3d 309, 321 (8th Cir. 1997).
ANSWER: Morgan Keegan denies these allegations.
81. Defendants acted in concert and conspired to defraud plaintiffs with respect to
the allegations herein resulting in damages to the plaintiff class.
ANSWER: Morgan Keegan denies these allegations.
WHEREFORE, Plaintiff demands judgment against Defendants for damages, including
actual and punitive, in such a sum as a jury shall reasonably assess plus interest, attorney fees,
and all costs of this proceeding.
Count 3 – Fraudulent Misrepresentations and Omissions
82. Plaintiff restates and realleges the paragraphs set forth above of his Petition and
incorporate the same by reference as through fully set forth herein.
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ANSWER:Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates the same by reference here.
83. In preparing and delivering to Plaintiffs the Offering Statement, which was dated
and issued on July 23, 2010, Morgan Keegan and Armstrong Teasdale as agents and
underwriter’s counsel for Morgan Keegan, supplied untrue and misleading information regarding
Project Sugar, Mamtek, and various other issues pertaining to the “Backstop” Security.
ANSWER: Morgan Keegan denies these allegations.
84. As the underwriter of the Bonds, Morgan Keegan intended to purchase the Bonds
from the issuer and resell them to a limited group of prospective buyers (like Plaintiff and other
members of the Plaintiff class) as part of Morgan Keegan’s normal business operations.
ANSWER: Morgan Keegan admits it intended to purchase the bonds from the Issuer and
resell them as part of its normal business operations. Morgan Keegan denies the remaining
allegations of this paragraph.
85. As the underwriter, as well as the direct seller, of the bonds at issue, Morgan
Keegan owed foreseeable, targeted Bonds investors like Plaintiff and the other class members a
duty. That duty included the obligation to exercise due and reasonable care and to act as a
"devil's advocate" in investigating and questioning the various facts, circumstances, and
representations made with respect to Project Sugar and the bond financing plan, with its
underlying "Backstop.”
ANSWER: Morgan Keegan denies these allegations.
86. Defendant Armstrong Teasdale, as underwriter's counsel and agents of Morgan
Keegan, undertook and owed a duty to foreseeable third parties, including the potential bond
investors such as Plaintiff and the class, to exercise due and reasonable care in performing their
part of the due diligence responsibilities in this bond offering and in supplying information in the
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Offering Statement that they wrote, controlled, and forwarded for use by Morgan Keegan to
directly solicit and sell the bonds to its clients who were prospective municipal bond purchasers,
such that the information supplied was not inaccurate or misleading as to important and material
facts.
ANSWER: Morgan Keegan denies these allegations.
87. Morgan Keegan violated its duty to Plaintiff and other prospective bond
purchasers and subsequent bondholders, in failing to exercise due and reasonable care in
investigating and questioning the various facts, circumstances, and representations made with
respect to Project Sugar and the bond financing plan, with its underlying "Backstop.”
ANSWER: Morgan Keegan denies these allegations.
88. Defendant Armstrong Teasdale violated its duties to foreseeable third parties,
including the potential bond investors such as Plaintiff, when it failed to exercise due and
reasonable care in investigating and questioning the various facts, circumstances, and
representations made with respect to Project Sugar and the bond financing plan, with its
underlying "Backstop." These breaches of their duties were particularly compounded by the
fact that neither advised nor supplied information crucial information that was already within
their knowledge base that there was a very legitimate question of whether Project Sugar's
principals were even operating a 60 ton commercial sucralose plant in China. Those concerns
were directly raised and communicated by Mr. Li, an employee and agent of Armstrong
Teasdale, who was employed and operating in mainland China at times material.
ANSWER: Morgan Keegan denies these allegations.
89. As a result of Defendants' breach of their duties, the statements made by them
were false and misleading and omitted the material information described in paragraph 43–44 of
the Complaint.
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ANSWER: Morgan Keegan denies these allegations.
90. The information provided by Defendants, as set forth above, was intentionally
provided by Defendants in the course of their business, and for their own pecuniary interests.
Further, the true nature regarding these statements and omissions were material to potential bond
purchasers, including Plaintiff. 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 Plaintiff.
ANSWER: Morgan Keegan denies these allegations.
91. Defendants’ fraudulent activity is so pervasive that it goes to the very existence
of the Bonds and the validity of their presence on the market. Accordingly, Plaintiff’s reliance on
the misrepresentations and omissions provided by Defendants may be presumed under a fraud on
the market theory because, among other things, fraud created the market for the Bonds. See, e.g.,
In re NationsMart Corp. Sec. Litig., 130 F.3d 309, 321 (8th Cir. 1997).
ANSWER: Morgan Keegan denies these allegations.
92. Defendants acted in concert and conspired to defraud plaintiffs with respect to
the allegations herein resulting in damages to the plaintiff class.
ANSWER: Morgan Keegan denies these allegations.
WHEREFORE, Plaintiff demands judgment against Defendants for damages, including
actual and punitive, in such a sum as a jury shall reasonably assess plus interest, attorney fees,
and all costs of this proceeding.
Count 4 – Missouri Blue Sky Law Violations
93. Plaintiff restates and re-alleges the paragraphs set forth above of this Petition and
incorporates the same by reference as through fully set forth herein.
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ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates the same by reference as though fully set forth herein.
94. Defendants sold the bonds, which qualify as a "security" under relevant blue sky
laws by means of an untrue statement of material fact, as well as by an omission of material facts
necessary in order to make the statements made not misleading under the circumstances.
ANSWER: Morgan Keegan denies these allegations.
95. Plaintiff and members of the Plaintiff class did not know that the statements
made by Defendants with respect to Project Sugar were untrue or that there was material
information that had been withheld from them.
ANSWER: Morgan Keegan denies these allegations.
96. The untrue statements of material fact and/or omissions by Defendants were such
that reasonable investors, including Plaintiff, would consider the true information important to
consider during their decision-making process. Defendants deprived Plaintiff of this opportunity
by way of their conduct. In doing so, it caused or contributed to cause Plaintiff’s and the class
members’ damages.
ANSWER: Morgan Keegan denies these allegations.
97. Defendant Armstrong Teasdale is vicariously liable for the conduct of its agents,
based upon principles of respondeat superior liability, agency principles, and partnership laws
applicable to limited liability partnerships, as prescribed by the statutes and common law of the
state of Missouri.
ANSWER: Morgan Keegan denies these allegations.
98. Regions is a control person of Morgan Keegan and, pursuant to Mo. Rev. Stat. §
409.5–509(g)(1), is liable for the acts of Morgan Keegan.
ANSWER: Morgan Keegan denies these allegations.
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99. Plaintiff and the class have commenced this action within the time prescribed by
relevant state law in that they have been commenced well within the two years since they
discovered the conduct underlying their claims. Plaintiffs stand ready to tender their securities to
defendant, as prescribed by Mo. Rev. Stat. § 409.5-509(b)(l).
ANSWER: Morgan Keegan denies these allegations.
WHEREFORE, Plaintiff demands judgment against Defendants for the consideration
paid for the security, less any income received on the security, plus interest, attorney fees, and all
costs of this proceeding.
Count 5 – Moneys Had and Received
100. Plaintiff restates and re-alleges the paragraphs set forth above of this Petition and
incorporate-the same by reference as through fully set forth herein.
ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates the same by reference here.
101. Defendants have been enriched by the money paid by Plaintiff and other class
members for the purchase of the bonds at issue; either directly from such purchase funds or
indirectly through compensation paid in relation to services associated with the sale of the bonds.
ANSWER:Morgan Keegan denies this allegation.
102. Defendants obtained this money through wrongful, unfair, and deceptive conduct
such that equity and good conscience require the money had a received by Defendants must be
paid to Plaintiff.
ANSWER:Morgan Keegan denies this allegation.
WHEREFORE, Plaintiff demands judgment against Defendants for damages, including
actual and punitive, in such a sum as a jury shall reasonably assess plus interest, attorney fees,
and all costs of this proceeding.
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Count 6 – Unjust Enrichment
103. Plaintiff restates and re-alleges the paragraphs set forth above of this Petition and
incorporate-the same by reference as through fully set forth herein.
ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates them by reference here.
104. Defendants have knowingly been enriched at Plaintiff’s and the Plaintiff class
members’ expense.
ANSWER: Morgan Keegan denies this allegation.
105. Defendants have accepted and retained the benefits conferred upon them to the
detriment of Plaintiff. It is inequitable for Defendants to retain the benefit of their wrongful and
unlawful conduct.
ANSWER: Morgan Keegan denies this allegation.
WHEREFORE, Plaintiff demands judgment against Defendants for damages, including
actual and punitive, in such a sum as a jury shall reasonably assess plus interest, attorney fees,
and all costs of this proceeding.
Count 7 – Attorney Malpractice
106. Plaintiff restates and re-alleges the paragraphs set forth above of this Petition and
incorporate-the same by reference as through fully set forth herein.
ANSWER: Morgan Keegan restates and realleges its responses to the paragraphs set forth
above and incorporates them by reference here.
107. Under Missouri law, the elements of legal malpractice are (1) an attorney-client
relationship; (2) negligence or breach of contract by the defendant; (3) proximate causation of
the plaintiff’s damages; and (4) damages to the plaintiff. See, e.g., Klemme v. Best, 941 S.W.2d
493, 495 (Mo. 1997).
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ANSWER: This allegation states legal conclusions to which no response is required. To
the extent one is required, Morgan Keegan denies that the allegation is relevant to any conduct of
Morgan Keegan.
108. While Armstrong Teasdale represented Morgan Keegan as underwriters’
counsel, the plaintiff class has standing under Missouri law to sue Armstrong Teasdale for
malpractice. An attorney’s duty to non-clients may be established by demonstrating: (1) the
existence of a specific intent by the client that the purpose of the attorney's services were to
benefit the plaintiffs; (2) the foreseeability of the harm to the plaintiffs as a result of the
attorney's negligence; (3) the degree of certainty that the plaintiffs will suffer injury from
attorney misconduct; (4) the closeness of the connection between the attorney's conduct and
the injury; (5) the policy of preventing future harm; (6) the burden on the profession of
recognizing liability under the circumstances. Donahue v. Shughart, Thomson & Kilroy, P.C.,
900 S.W.2d 624, 629 (Mo. 1995).
ANSWER: This allegation states legal conclusions to which no response is required. To
the extent one is required, Morgan Keegan denies that the allegation is relevant to any conduct of
Morgan Keegan.
109. This test is easily met where, as here Armstrong Teasdale stated to Mamtek’s
agents that the purpose of the due diligence process it engaged in was “to disclose to potential
purchasers of [the Bonds] information that is material to the ability of purchasers to make an
informed investment decision.” It was foreseeable and certain that Armstrong Teasdale’s
malpractice would lead to the plaintiff class’ financial injuries. Policy mandates that
underwriters counsel be held liable to maintain confidence in the municipal bond market.
Imposing liability for failing to conduct due diligence where due diligence is required will
impose no burden on the legal profession. These facts establish a de facto attorney-client
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relationship for the purposes of legal malpractice claims under Missouri Law.
ANSWER: This allegation states legal conclusions to which no response is required. To
the extent one is required, Morgan Keegan denies that the allegation is relevant to any conduct of
Morgan Keegan.
110. Underwriter’s counsel owes a duty to assist the Underwriter with drafting the
Official Statement and ensure that there are no untrue statements of material facts or misleading
statements contained therein. At the time the Official Statement was issued, Armstrong
Teasdale was aware that Mamtek was not an ongoing concern in China and indeed had never
manufactured sucralose. It failed to act on these facts or take other reasonable steps to verify
Mamtek’s representations. As a result of this negligence or breach of contract, Morgan Keegan
issued the Bonds with an Official Statement and marketing materials which are substantially
similar to the Official Statement and contain identical misrepresentations and omissions. These
misrepresentations and omissions could have been caught had Armstrong Teasdale either acted
on the information it had or taken reasonable steps to conduct adequate due diligence on
Mamtek. Had these misrepresentations and omissions been caught, the Bonds would not have
issued.
ANSWER: Morgan Keegan denies that these allegations are in any way relevant to
Morgan Keegan's conduct and do not believe an answer is required. If one is required, Morgan
Keegan admits that Armstrong Teasdale owed a duty to assist the underwriter with drafting the
official statement. Morgan Keegan is without sufficient information to know information
Armstrong Teasdale had but did not communicate to Morgan Keegan. Morgan Keegan denies
the remainder of the allegations.
111. Armstrong Teasdale’s malpractice led to the issuance of the Bonds and created
the entire market for this fraud. The plaintiff class—including Cromeans—purchased the Bonds
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and predictably lost the entirety of its investment.
ANSWER: Morgan Keegan denies these allegations.
112. Such conduct by Defendant Armstrong Teasdale showed complete indifference
or conscious disregard for the rights of others.
ANSWER: This allegation states a legal conclusion to which no response is required. To
the extent one is required, Morgan Keegan denies the allegation.
WHEREFORE, Plaintiff demands judgment against Armstrong Teasdale for damages,
including actual and punitive, in such a sum as a jury shall reasonably assess plus interest,
attorney fees, and all costs of this proceeding.
Jury Trial Demand And Request For Relief
Plaintiff and the Plaintiff class demand trial by jury, and ask this Court to award them
the relief requested above and any further or other relief as is proper.
ANSWER: Morgan Keegan denies that Plaintiff Cromeans is entitled to a jury trial and
denies that a class is appropriate in this case. Mr. Cromeans, and many of the class members,
have binding arbitration agreements that would preclude a jury trial.
Defendant Morgan Keegan's Affirmative Defenses to All Counts
I. Superseding Cause – Intervening Criminal Acts – Mamtek's Intentional Securities Fraud
1.Defendant Morgan Keegan is not the cause of any damages allegedly suffered by the
Plaintiffs.
2.Prior to the issuance of the bonds, Morgan Keegan sought and received sworn
assurances from Mamtek and Steptoe and Johnson, a law firm which acted as counsel for
Mamtek, that the statements in the Official Statement regarding the Company were true. These
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statements include all the allegedly untrue and misleading statements described in Plaintiff's First
Amended Petition.
3.Defendant Morgan Keegan reasonably relied on the sworn assurances from Mamtek
that the statements in the Official Statement regarding the Company were true.
4.Bruce Cole, the CEO of Mamtek who signed the verifications that these statements
were true, has been arrested and charged with four counts of intentional securities fraud in
connection with his intentional false statements regarding the company that were included in the
Issuer's Official Statement. A copy of the Felony Complaint filed against him is in Randolph
County, Missouri, is attached hereto as Exhibit A.
5.The criminal acts of Bruce Cole were not foreseeable.
6.The criminal acts of Bruce Cole interrupted the development of the sucralose plant in
Moberly so much that the project could not succeed subsequent to these criminal acts.
7.These intervening criminal acts are the cause of Plaintiffs' damage.
II. Superseding Cause – Intervening Criminal Acts of Theft of Bond Proceeds
8.Defendant Morgan Keegan is not the cause of any damages allegedly suffered by the
Plaintiffs.
9.Subsequent to the issuance of the bonds, Mamtek US issued thirteen false and
fraudulent invoices seeking payments of $6,652,673 for a non-existent company called Ramwell.
10. Most of the money Mamtek received from these 13 Ramwell invoices was stolen
from the project and transferred to Mamtek officers, Mamtek International, or attorneys for
Mamtek US or Mamtek International.
11. Bruce Cole, the CEO of Mamtek who authorized submission of these fraudulent
invoices, has been arrested and charged with one count of felony theft in Randolph County,
Missouri. See Ex. A.
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12. Mr. Cole and his wife have also been sued by the Securities Exchange
Commission for misappropriation of the proceeds from the bonds issued by the IDA.
13. Morgan Keegan had no role or participation in any decision regarding the use of
bond proceeds and was therefore helpless to prevent these criminal acts.
14. These criminal acts of Mr. Cole were not foreseeable.
15. The criminal acts of Bruce Cole interrupted the development of the sucralose
plant in Moberly so much that the project could not succeed subsequent to these criminal acts.
16. These intervening criminal acts are the cause of Plaintiffs' damages.
III. Superseding Cause – Mamtek's Failure to Secure Surety Bond on Construction of Facility
17. At the time the bonds were sold to Plaintiff, Mamtek had promised to secure a
construction surety bond to complete construction of the sucralose manufacturing facility.
18. The terms of the surety bond were subject to approval by the City of Moberly on
such terms as to insure the timely and complete construction of the Project.
19. Morgan Keegan was informed by Tom Cunningham, counsel for the City of
Moberly and the IDA, that a surety bond was in place. Morgan Keegan reasonably relied on the
representations of the City that a surety bond was in place.
20. On information and belief, neither Mamtek, Moberly nor the IDA secured a
sufficient surety bond to insure the timely and complete construction of the Project.
21. Morgan Keegan had no role or participation in any decision regarding the
procurement of a sufficient surety bond.
22. The failure to secure a surety bond sufficient to guarantee completion of the
construction of the sucralose manufacturing facility is an intervening cause of Plaintiff's
damages.
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23. The failure to secure a surety bond was not foreseeable.
24. Construction was not completed on the project because a sufficient surety bond
was never procured.
25. The failure to secure a surety bond was the cause of Plaintiffs' damages.
IV. Superseding Cause – Bad Faith Failure to Appropriate
26. Defendant Morgan Keegan is not the cause of any damages allegedly suffered by
the Plaintiffs.
27. The City of Moberly made a covenant to appropriate funds for payment of the
bonds issued by the Moberly IDA that are the subject of this litigation.
28. The City of Moberly's obligation to make basic payments sufficient to satisfy the
obligations to bond purchasers, if funds had been appropriated, were not conditioned upon
completion of the project.
29. On September 6, 2011, the City of Moberly passed an emergency ordinance
refusing to pay funds that it had already appropriated for payment of the bonds issued by the
Moberly IDA.
30. On information and belief, the City of Moberly had sufficient funds to pay the
amounts due the bondholders in September 2011 but refused to do so in bad faith.
31. Since September 2011, the City of Moberly, acting in bad faith, has continued to
breach its promise to propose to appropriate funds to pay for the bonds issued by the Moberly
IDA.
32. The City of Moberly's bad faith failure to appropriate funds to pay for the bonds
issued by the Moberly IDA caused the Plaintiffs' damages.
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V. Reasonable Care/Reasonable Investigation/Lack of Knowledge
33. As a matter of fact and law, all statements contained in the Preliminary Official
Statement dated July 9, 2010, the Supplement to the Official Statement dated July 23, 2010, and
the Official Statement regarding the bonds are statements of the Issuer.
34. Moberly and the IDA undertook investigations regarding this project, including
investigations into the representations of the Issuer's Official Statement that Plaintiffs allege are
false or materially misleading, and provided information from those investigations to Morgan
Keegan. Moberly and the IDA were responsible for identifying material information about the
project in which they were engaged.
35. Morgan Keegan reasonably relied upon information provided by Moberly and the
IDA in fulfillment of its duties as underwriter of these bonds and reasonably relied upon their
determinations as to what information was material to understand the project.
36. The information provided to Morgan Keegan by Moberly and the IDA before the
bonds sold was critical to whether the bonds would ever issue.
37. Defendant Morgan Keegan did not know or believe that the statements alleged to
be untrue or misleading in the Issuer's Preliminary Official Statement and the Issuer's Official
Statement were untrue or misleading at the time of the sale of the bonds to Plaintiffs. Nor did
Defendant determine to omit information about Moberly's project.
38. Defendant Morgan Keegan took reasonable and necessary steps to confirm the
truth of the statements in the official statement and to insure that material information was not
omitted.
39. Defendant Morgan Keegan reasonably relied on sworn statements from the City,
the IDA, Mamtek, and others in preparing the Issuer's Preliminary Official Statement and the
Issuer's Official Statement.
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40. Defendant Morgan Keegan in the exercise of reasonable care could not have
known that any statements in the Issuer's Preliminary Official Statement or the Issuer's Official
Statement were untrue or misleading or that any material information was omitted.
41. Morgan Keegan acted at all times in good faith and in accordance with applicable
law, and without knowledge of any wrongful acts or intent.
42. Any and all actions taken by Morgan Keegan were lawful, proper, and consistent
with its duties and obligations to Plaintiffs.
43. Morgan Keegan's fulfillment of its obligations to act in good faith and with
reasonable care and diligence prevent the Plaintiffs from succeeding on their claims against
Morgan Keegan.
VI. Comparative Fault – Plaintiffs
44. If Plaintiffs suffered any damages alleged, Defendant Morgan Keegan is not the
cause or the sole cause of the damages.
45. On information and belief, Plaintiff failed to exercise due care in deciding
whether to purchase the subject bonds.
46. The Issuer's Official Statement dated July 23, 2010 detailed the risks to which
bond purchasers would be subject.
47. The risks described in the Official Statement, which must be read in their entirety,
included but were not limited to specifically:
a. Risk of Non-Appropriation: THE CITY IS NOT LEGALLY
OBLIGATED TO APPROPRIATE FUNDS TO PAY THE BASIC PAYMENTS OR
ADDITIONAL PAYMENTS UNDER THE FINANCING AGREEMENT.
b. Construction Risk: Construction of the Project may be impeded by events
beyond the control of the Authority, the City, or the Company.
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c. Financial Feasibility of the Project: The financial feasibility of the Project
depends in part upon the operation of the Project as a sucralose manufacturing facility
throughout the term of the Bonds. If the Company [Mamtek] fails to occupy and operate
the Project, there may be insufficient revenues to make Basic Payments to the City or
enable the City to pay the principal of and interest on the Bonds. There is no guarantee
that operation of the Project by a successor to the Company will provide sufficient
amounts to pay when and as due principal of and interest on the Bonds or to redeem the
bonds in accordance with the indenture.
48. Plaintiffs negligently ignored these risks which were fully disclosed to them prior
to the purchase.
49. On information and belief, Plaintiffs failed to use the diligence required in the
monitoring, trading, managing, and handling of their accounts.
50. Plaintiffs' failure to exercise due care in deciding whether to purchase the subject
bonds was a contributing cause of their damages.
51. The damages for which Plaintiffs seek to hold Morgan Keegan liable resulted in
whole or in part from Plaintiffs' own acts or omissions, and Morgan Keegan is not responsible
for or liable to Plaintiffs for their own wrongful or negligent acts or omissions.
52. The negligent and intentional acts of other entities, including but not limited to
Moberly, the IDA, Tom Cunningham, Cunningham Vogel & Rost, Mamtek, Bruce Cole, Steve
Peden, Steptoe & Johnson, Alissa Roston, Tom Smith, the Missouri Department of Economic
Development and others yet to be discovered were a contributing cause of Plaintiffs' damages if
any there are.
53. Morgan Keegan is not responsible for or liable to Plaintiffs for the wrongful or
negligent acts or omissions of third parties.
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VII. Comparative Faults – Third Parties
54. If Plaintiffs suffered any damages alleged, Defendant Morgan Keegan is not the
cause or the sole cause of the damages.
55. The negligent and intentional acts of other entities, including but not limited to
Moberly, the IDA, Tom Cunningham, Cunningham Vogel & Rost, Mamtek, Bruce Cole, Steve
Peden, Steptoe & Johnson, Alissa Roston, Tom Smith, the Missouri Department of Economic
Development and others yet to be discovered were a contributing cause of Plaintiffs' damages if
any there are.
56. Keegan is not responsible for or liable to Plaintiffs for the wrongful or negligent
acts or omissions of third parties.
VIII. Failure To Mitigate Damages
57. Plaintiff has not attempted to sell his bonds.
58. Plaintiff has not made demand on the City of Moberly to appropriate funds to
make payments on his bonds.
59. Plaintiff has not tendered his bonds to the Issuer.
60. Plaintiff has failed to take reasonable steps to mitigate his damages.
IX. Failure To State A Class Action Claim Under FRCP 23(a) or 23(b)(3)
61. Plaintiff purports to bring his individual grievance in court as a purported “class
action,” but Plaintiff’s recently completed deposition confirms that Plaintiff cannot satisfy the
requirements for acting as a certifiable class representative under FRCP 23(a) or 23(b)(3), and
thus his First Amended Complaint fails to state a Class Action Claim. Moreover, Plaintiff has
admitted that he never saw, let alone read or relied upon, the Preliminary Official Statement or
the Official Statement for the Moberly Bonds, and hence, he did not and could not personally
rely on those documents, and he is not capable of representing other purported class members
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who allegedly reviewed or relied on those documents. Common issues of fact or law do not
exist, let alone predominate in this purported state law-based action inasmuch purchasers of the
Moberly Bonds come from 19 different states and Plaintiff is the only Moberly Bond purchaser
who allegedly received an e-mail from his registered representative upon which Plaintiff alleged
relied in connection with his purchase of the Moberly Bonds. Moreover, Plaintiff’s attempt in
his First Amended Complaint to utilize the federal law “fraud-on-the-market” theory of reliance
confirms that federal law, not state law, is governs the Moberly municipal bond offering and
further confirms that Plaintiff is not an adequate class representative. Finally, proceeding with
this action as a purported class action is not superior to other methods for fairly and efficiently
adjudicating this controversy.
X. Plaintiff Is Required To Arbitrate
62. Plaintiff is bound by an enforceable arbitration agreement with Morgan Keegan
that requires him to arbitrate his individual dispute pursuant to the Federal Arbitration Act and
pursuant to Missouri, Alabama and Tennessee law. Morgan Keegan has not waived its right to
arbitrate and demands that Plaintiff arbitrate as he is contractually and legally obligated to do.
Morgan Keegan will bring a Motion to Compel Arbitration in this Court at the appropriate time
(at or following the hearing on Plaintiff’s Motion for Class Certification) if Plaintiff does not
voluntarily agree to arbitrate his claim.
XI. Plaintiff Has Waived His Jury Trial Right
63. Plaintiff has waived his right to a jury trial pursuant to the written (and
enforceable) agreement that he entered into with Morgan Keegan. Plaintiff’s request for jury
trial should be stricken by the Court.
XII. Additional Affirmative Defenses
64. Defendant Morgan Keegan did not guarantee Plaintiff a return on his investment.
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65. Plaintiff voluntarily assumed the risk of investing and is precluded from recovery
herein.
66. Plaintiff's claims are barred by the doctrine of loss causation.
67. Plaintiff's claims are barred in their entirety by the "bespeaks caution" doctrine.
68. Plaintiff's recovery, if any, must be adjusted for the performance of the overall
market.
69. Plaintiff's First Amended Complaint fails to allege a claim for which punitive
damages can be recovered.
70. Article I, § 8 and the Fifth, Sixth, Eighth, and Fourteenth Amendments of the
United States Constitution, Article I, §§ 2, 10, 18, 19, 21 and 28 of the Missouri Constitution,
and decisional law from the United States Supreme Court bar the imposition of punitive damages
against Morgan Keegan in this case.
71. Plaintiffs' asserted claim for attorney's fees is barred by Missouri state law.
72. Various individuals and entities provided information to Moberly and the IDA
regarding the bonds issued in July 2010.
73. Discovery in this matter is ongoing and is likely to reveal further intentional or
negligent acts of other third parties.
74. The intentional or negligent acts of other third parties as yet undiscovered are the
superseding cause of Plaintiffs' damage.
75. Plaintiff has failed to join Moberly and the IDA, who are necessary parties to this
litigation because their rights and obligations will be affected by the outcome.
WHEREFORE, having fully answered, defendant Morgan Keegan prays for judgment
against Plaintiffs and in favor of Defendant Morgan Keegan on Counts 1, 2, 3, 4, 5, and 6, for
///
Case 2:12-cv-04269-NKL Document 88 Filed 07/05/13 Page 54 of 56
55 DB04/0832104.0004/9016690.2
recovery of their costs herein expended, and for such other and further relief as this Court finds
just and proper.
Respectfully submitted,
STINSON MORRISON HECKER LLP
/s/ Charles W. Hatfield Charles W. Hatfield, Mo. Bar No 40363 Jeremy A. Root, Mo. Bar No. 59451 230 W. McCarty St. Jefferson City, MO 65101 Tel.: (573) 636-6263 Fax: (573) 636-6231 chatfield@stinson.com jroot@stinson.com Bernard Suter Admitted Pro Hac Vice Keesal, Young & Logan 450 Pacific Avenue San Francisco, CA 94133 ben.suter@kyl.com Tel.: 415.398.6000 Fax: 415.981.0136
Attorneys for Defendant Morgan Keegan & Company, Inc.
Case 2:12-cv-04269-NKL Document 88 Filed 07/05/13 Page 55 of 56
56 DB04/0832104.0004/9016690.2
CERTIFICATE OF SERVICE
I hereby certify that on the 5th day of July, 2013, I served a copy of the foregoing on the
following electronically through the CM/ECF system:
J. Timothy Francis James L. North & Associates 300 Richard Arrington Jr. Blvd. North Suite 700, Title Building Birmingham, Alabama 35203 Phone: (205) 251-0252 Fax: (205) 251-0255 francis@bhmrr.com
Dale C. Doerhoff Timothy W. Van Ronzelen Heidi Doerhoff Vollet Cook Vetter Doerhoff Landwehr 231 Madison Street Jefferson City, MO 65101 ddoerhoff@cvdl.net tvanronzelen@cvdl.net hvollet@cvdl.net Attorneys for Defendant Armstrong Teasdale, LLP
Richard E. McLeod MBE 28136 The McLeod Law Firm, P.C. 2020 Wyandotte St. Kansas City, MO 64108 Phone: (816) 421-5656 Fax: (816) 421-3339 richmcleod@mclaw.com Andrew P. Campbell Caroline S. Gidiere Stephen D. Wadsworth Leitman, Siegal, Payne & Campbell PC 420 N. 20th Street, Suite 2000 Birmingham, AL 35203 Phone: (205) 251-5900 Fax: (205) 323-2098 acampbell@lspclaw.com cgidiere@lspclaw.com swadsworth@lspclaw.com
Attorneys for Plaintiffs
/s/ Bernard Suter Attorney for Defendant Morgan Keegan & Company, Inc.
Case 2:12-cv-04269-NKL Document 88 Filed 07/05/13 Page 56 of 56
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