Regions Bank has agreed to pay $1 million to settle investment fraud charges brought by the Securities and Exchange Commission, according to a September 21 article by AP Legal Affairs writer Curt Anderson. On September 21, the SEC issued a Cease-and-Desist Order finding that Regions, the primary banking subsidiary of Regions Financial Corporation, was a cause of U.S. Pension Trust Corp.’s and U.S. College Trust Corp.’s (collectively, USPT) violations of federal securities laws.
Beginning in 1996, with Regions Bank’s assistance, USPT allegedly defrauded approximately 14,000 primarily Latin American investors by charging exorbitant, undisclosed commissions and fees in connection with the sale of mutual funds from well-known U.S. fund companies. Regions Bank allegedly participated in the marketing of the USPT plans under its name, helped prepare promotional videos and materials, and met with prospective investors, along with some of the scheme’s 2000 unregistered sales agents, according to the article. “Regions Bank provided a false air of legitimacy to this scheme,” the article quoted Glenn S. Gordon, associate director of the SEC’s Miami office, as saying.
Without disclosing it to investors, USPT apparently took up to 85% of investors’ annual contributions, and as much as 18% of investors’ lump-sum contributions and used these contributions to gain profits for itself, and pay commissions to its sales agents and insurance premiums to an insurance company USPT’s principals owned. As one aspect of the plans, individuals reportedly established trust accounts at Regions, which served to “hold” the assets in which individuals had invested. A primary selling point for USPT’s plans was the assurance that investors’ funds would be safe because investors would have a direct trust relationship with a major U.S. bank.
Regions (or a predecessor, Union Planters Bank) served as trustee of the plans and, in that capacity, followed USPT’s instructions to distribute excessive portions of the investors’ contributions to USPT as commissions and fees. Regions allegedly knew or should have known, however, that these exorbitant commissions and fees were not disclosed in USPT’s marketing materials or in any other document USPT provided to investors. Regions did not disclose the fees in its trust agreement papers, which the SEC described as “misleading.”
Based on the above, the Order requires Regions to cease and desist from committing or causing any violations and any future violations of the securities laws, and pay a penalty in the amount of $1 million, which will be used to compensate harmed investors.
The SEC’s action is the latest in a growing list of problems that Regions and its affiliates have had with the SEC. Regions’ Morgan Keegan affiliate is currently the subject of investigations involving bond funds sold by the company and is the subject of an action involving auction rate securities sold by the company.
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