NEW YORK — The sales tactics used by Morgan Keegan during the turmoil in the auction-rate securities market did not amount to fraud, a federal court ruled Tuesday, handing the embattled brokerage a victory.

Morgan Keegan's "failure to predict the market does not constitute securities fraud," ruled William S. Duffey Jr., a U.S. District judge in Atlanta.

The Securities and Exchange Commission had sued Morgan Keegan, a unit of Regions Financial Corp., in July 2009, asking the court to force the brokerage to buy back illiquid auction-rate securities because it allegedly failed to warn customers appropriately of the risks involved.

The SEC wasn't immediately available for comment Tuesday.

The SEC complaint said Morgan Keegan sold about $647 million of ARS to its customers in just three months in early 2008, but failed to warn them about increased risks even as the market collapsed and Morgan Keegan executives raised red flags as early as February 2008.

Investors in auction-rate securities, long-term debt instruments whose prices reset in periodic short-term auctions, were trapped in the investments after the $330 billion market collapsed in early 2008. Regulators have successfully pushed Wall Street firms and brokerage houses to buy back billions in the deals.

Duffey cited in his ruling Tuesday several instances where Morgan Keegan clients testified they were told, in various forms, ARS were "as good as cash." But the judge also found that the firm quickly changed its written disclosures to warn customers, making various efforts to warn them.

"The disclosures and their availability were adequate," Duffey ruled.

The victory comes just one week after Morgan Keegan settled a separate SEC lawsuit that accused fund managers at the firm of defrauding investors by inflating the value of risky subprime-mortgage securities. Morgan Keegan in that case agreed to pay roughly $200 million.

When the subprime settlement was announced, Regions Financial also said it would look for alternatives for Morgan Keegan, hiring Goldman Sachs Group Inc. to explore a possible sale.

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