JEFFERSON CITY — Columbia-based Shelter Insurance has filed a $390 million lawsuit against a Memphis-based firm that it says failed to perform due diligence on a municipal bond offering for the failed Mamtek sweetener plant project in Moberly.
The Columbia Daily Tribune reported Wednesday that Shelter filed a lawsuit Monday against underwriter Morgan Keegan at the 19th Circuit Court in Cole County. The lawsuit also names the St. Louis law firm Armstrong Teasdale and Mark Boatman, a partner at that firm, as defendants.
In 2010, the insurance company purchased about $5.6 million of those bonds, in which it invested to provide a reliable income stream to help it cover claims from customers.
In the lawsuit filed Monday, Shelter states that Morgan Keegan did not do enough due diligence when it underwrote $39 million in municipal bonds for the sweetener factory's construction.
Shelter states Morgan Keegan did not wait for Mamtek to turn in "detailed organizational, operational and financial data" before preparing sales materials for the bond offering.
The insurance company is now seeking a return of its investment and punitive damages equal to 10 times the amount of the total bond issue.
The sweetener factory had been projected to create 612 jobs in Moberly, but it never opened.
In September, the company missed a payment toward $39 million of bonds issued by the City of Moberly for the project. Construction of the factory halted, and the city has said it will default on the bonds. The city's credit rating has also been downgraded by Standard and Poor's.
The state had offered up to $17 million in state incentives, but nothing was paid because the deal fell apart before Mamtek qualified for the state money.
The company is under investigation by the Securities and Exchange Commission and Missouri's attorney general.
In its lawsuit, Shelter states that Morgan Keegan repeated false claims from Mamtek about the company's financial prospects. The project's bonds came with a promise that Moberly would use revenue from the Mamtek project to make payments on the debt.
Robert Horn, an attorney representing Shelter, said it is important to hold Morgan Keegan responsible for the sales materials used to market the bonds.
"Investors have to rely on information they are given by professionals like Morgan Keegan," Horn said.
In a statement, Morgan Keegan denied that it was at fault.
"The claims made in the lawsuit have absolutely no merit, and we look forward to defending ourselves vigorously," the company stated.
Armstrong Teasdale did not return calls or email messages from reporters seeking comment on the lawsuit.
The lawsuit is the first legal attempt to hold a person or company that profited from the bond deal accountable for bondholder losses. There are other court cases pending, but they focus on Mamtek or the unfinished factory and its equipment.