CHICAGO – An investor with a stake in $39 million of defaulted bonds issued for a failed artificial sweetener plant in Missouri has dropped the underwriter’s counsel from litigation alleging securities fraud.

Columbia-based Shelter Life Insurance Co appears to be zeroing in on underwriter Morgan Keegan & Co. ahead of a December trial.

Shelter filed a lawsuit last year in Cole County Circuit Court accusing Morgan Keegan of securities fraud in connection with the bond issue, along with the firm’s counsel on the deal. Armstrong Teasdale LLP, and Armstrong partner Mark Boatman.

Shelter’s attorneys previously dropped Boatman as a defendant and on Monday they dropped St. Louis-based Armstrong Teasdale. Under Missouri rules, the plaintiffs can take such action without court approval. The attorneys reserved the right to seek to bring the law firm back into the case in the future.

The Moberly Industrial Development Authority sold bonds backed by a city appropriation pledge to help finance the sucralose manufacturing plant being built by Chinese-based Mamtek US Inc. in 2010. In August 2011 the company defaulted on a payment to Moberly needed for debt service and the city informed trustee UMB Bank that it wouldn’t honor its pledge to repay the debt.

Mamtek then abandoned the factory. UMB sold off the plant’s assets last year raising about $2 million. The city lost its investment-grade rating from Standard & Poor’s and the trustee has not tapped remaining reserves for recent debt service payments due to rising legal costs.

An attorney from Horn Aylward & Bandy LLC representing Shelter declined to comment on the reasoning behind the action but legal sources said it appears attorneys are narrowing their focus on Morgan Keegan as a trial date looms later this year.  Another two firms remain as third party defendants – Pelligrino and Associates and Cunningham Vogel & Rost PC . They were brought in by the other defendants. The court recently dropped the city as a third party defendant.

Armstrong representatives said they were pleased with bondholder’s move. “From our point of view, Armstrong Teasdale should never have been included in the lawsuit. Our client was Morgan Keegan and we did not advise the city or sell any bonds or make any representations to anyone concerning the bonds,” said the firm’s general counsel Jay Summerville. “We have always asserted that their claims were without merit.”

The complaint accused the firms of failing their fiduciary responsibilities to engage “in proper due-diligence review of organization, operations and financial condition of Mamtek” and making false and misleading statements that were material to the company’s and project’s viability.

The firms represented Mamtek as a viable company with an operating plant in China in both the offering statement and sales solicitations while doing little research to verify the information, the lawsuit charges. It was later learned that the company did not have an operating plant in China. The lawsuit questions why the firms did not do a better job of uncovering that fact.

Morgan Keegan at the time of the lawsuit’s filing called the claims without merit and vowed to fight the litigation. The firm did not comment on the latest action this week. Morgan Keegan merged with Raymond James Financial last year and the combined firm operates under the Raymond James name. Morgan Keegan remains the named defendant.

Missouri Secretary of State Jason Kander recently filed a petition alleging securities fraud against Morgan Keegan and is seeking restitution for in-state bondholders. The firm is seeking dismissal.

The trustee and other creditors forced the company into involuntary bankruptcy and various lawsuits and other legal claims have also been lodged against former Mamtek executive Bruce Cole, Morgan Keegan, and other firms.

Missouri Attorney General Chris Koster and Randolph County Prosecuting Attorney Mike Fusselman announced last September a criminal complaint alleging securities fraud and stealing against Cole. The Securities and Exchange Commission filed a civil case against Cole.

Armstrong remains a named defendant in another bondholder lawsuit pending in federal court.

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