IN THE UNITED STATES DISTRICT COURT FOR THE …...Morgan Keegan denies that there are several...

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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.

Case 2:12-cv-04269-NKL Document 88 Filed 07/05/13 Page 1 of 56

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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.


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



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




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."




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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.


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.





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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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.


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.


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.


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.


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.



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.


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;"


21 DB04/0832104.0004/9016690.2

(b) "THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR


(c) "THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR


(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


22 DB04/0832104.0004/9016690.2

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


23 DB04/0832104.0004/9016690.2

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.


24 DB04/0832104.0004/9016690.2

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,


25 DB04/0832104.0004/9016690.2

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


26 DB04/0832104.0004/9016690.2

purchase requirement was established by the alleged agreement.


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.


27 DB04/0832104.0004/9016690.2

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.



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.


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


28 DB04/0832104.0004/9016690.2

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.


29 DB04/0832104.0004/9016690.2

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.


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


30 DB04/0832104.0004/9016690.2

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


31 DB04/0832104.0004/9016690.2

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.



32 DB04/0832104.0004/9016690.2

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.



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.


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


33 DB04/0832104.0004/9016690.2

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.


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




34 DB04/0832104.0004/9016690.2

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.


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


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.”


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


35 DB04/0832104.0004/9016690.2

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.


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.”


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


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.


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.


36 DB04/0832104.0004/9016690.2


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.


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).


81. Defendants acted in concert and conspired to defraud plaintiffs with respect to

the allegations herein resulting in damages to the plaintiff class.





Count 3 – Fraudulent Misrepresentations and Omissions




37 DB04/0832104.0004/9016690.2

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.


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


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


underlying "Backstop.”


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


38 DB04/0832104.0004/9016690.2

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.


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.”


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


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.


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.


39 DB04/0832104.0004/9016690.2


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.


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).


92. Defendants acted in concert and conspired to defraud plaintiffs with respect to

the allegations herein resulting in damages to the plaintiff class.





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.


40 DB04/0832104.0004/9016690.2


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.


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.


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.


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.


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.



41 DB04/0832104.0004/9016690.2

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).


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


incorporate-the same by reference as through fully set forth herein.


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.





42 DB04/0832104.0004/9016690.2

Count 6 – Unjust Enrichment





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.




Count 7 – Attorney Malpractice





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).


43 DB04/0832104.0004/9016690.2

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).



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


44 DB04/0832104.0004/9016690.2

relationship for the purposes of legal malpractice claims under Missouri Law.



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


45 DB04/0832104.0004/9016690.2

and predictably lost the entirety of its investment.


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


46 DB04/0832104.0004/9016690.2

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.


47 DB04/0832104.0004/9016690.2

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.


48 DB04/0832104.0004/9016690.2

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.


49 DB04/0832104.0004/9016690.2

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.


50 DB04/0832104.0004/9016690.2

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.


51 DB04/0832104.0004/9016690.2

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.


52 DB04/0832104.0004/9016690.2

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


53 DB04/0832104.0004/9016690.2

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.


54 DB04/0832104.0004/9016690.2

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

///


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 [email protected] [email protected] Bernard Suter Admitted Pro Hac Vice Keesal, Young & Logan 450 Pacific Avenue San Francisco, CA 94133 [email protected] Tel.: 415.398.6000 Fax: 415.981.0136

Attorneys for Defendant Morgan Keegan & Company, Inc.


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 [email protected]

Dale C. Doerhoff Timothy W. Van Ronzelen Heidi Doerhoff Vollet Cook Vetter Doerhoff Landwehr 231 Madison Street Jefferson City, MO 65101 [email protected] [email protected] [email protected] 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 [email protected] 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 [email protected] [email protected] [email protected]

Attorneys for Plaintiffs

/s/ Bernard Suter Attorney for Defendant Morgan Keegan & Company, Inc.


mailto:[email protected]





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