A controversial court's declaration that a former SEC economist allegedly gave fraudulent testimony in an arbitration case against Morgan Keegan & Co. could have a widespread impact on similar arbitration cases against the brokerage firm. Houston U.S. District Court Judge Lynn Hughes threw out a 2010 ruling by a FINRA arbitration panel that ordered Morgan Keegan, a unit of Regions Financial Corp., to pay $9.2mn to a group of investors for losses tied to troubled bond funds.   That award was the largest against the brokerage, which has been hit with hundreds of arbitration claims from investors for losses in 6 funds holding risky subprime mortgages. Controverial Opinion. Hughes, in a controversial opinion, invalidated the arbitration award. Hughes did so partly because he said the $9.2mn ruling was based on allegedly "fraudulent testimony" from a well-respected expert witness for the investors. The testimony came from Craig McCann, a former SEC economist and certified financial analyst and litigation consultant in Fairfax, Virginia.  McCann, Hughes wrote in his opinion, admitted in another arbitration case that his testimony about Morgan Keegan's pricing of funds values was "false." But a lawyer for the investors said Hughes got the facts wrong.  McCann did testify in another case against Morgan Keegan that his figures were inaccurate, but that inaccuracy was actually in favor of Morgan Keegan, not the investors for whom he testified.  And now, lawyers are concerned the troubled brokerage will try to use the opinion to its advantage in arbitration cases that are still pending. Some 1,000 investors filed arbitration cases involving losses they incurred during 2007 and 2008. Many cases are still pending. Morgan Keegan, which was put up for sale by Regions in June, paid a $200mn fine to the SEC and state regulators this summer to settle fraud allegations against the Memphis-based brokerage. A star fund manager at the firm also agreed to a $500,000 fine and was barred from the industry. Court's Ruling Could Be Overturned. There's no guarantee Hughes' ruling will stand.  Two previous decisions by Hughes to overturn arbitration orders have already been reversed. In one of the cases, the appeals court said the judge "improperly substituted his judgment for that of the arbitrator." [Reuters, 10/7/11]