Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, September 21, 2009

SEC & Regions Bank Settle Offering Fraud Allegations

The SEC charged Alabama-based Regions Bank for its role in an offering fraud that victimized thousands of investors predominantly in Latin America.  The SEC alleges that Regions Bank and its predecessor were a key selling point in the investment scheme because the relationship with a U.S. bank gave Latin American investors the impression that their funds would be secure.  Regions Bank agreed to settle the SEC's charges by consenting to the entry of a cease-and-desist order and payment of a $1 million penalty that will be placed into a Fair Fund to compensate harmed investors in the USPT offering fraud.

The SEC previously charged unregistered broker-dealers U.S. Pension Trust Corp. and U.S. College Trust Corp. (USPT) for deceptively charging investors exorbitant, undisclosed commissions and fees in the sale of mutual funds through a series of investment plans. Regions Bank served as trustee of the investment plans.

According to the SEC's complaint, filed in the Southern District of Florida, Regions Bank and its predecessor Union Planters Bank served as trustee of investment plans since October 2001. The investment plans gave investors a choice of making either annual contributions or a single, lump-sum contribution. Until March 2006, USPT did not disclose to investors that it subtracted substantial amounts of their contributions for payment of sales commissions and other fees. USPT deducted up to 85 percent of initial contributions in the annual plans and as much as 18 percent in the single contribution plans. The SEC alleges that USPT has illicitly raised at least $255 million from more than 14,000 investors.

The SEC alleges that Regions Bank allowed USPT to use its name in marketing materials, prepared a promotional video that was posted on USPT's Web site, and sent representatives to Latin America to meet with sales agents and prospective investors to explain Regions Bank's role as trustee. Regions entered into individual trust relationships with all investors, processed their contributions, and purchased the selected mutual funds for them.

Regions Bank stopped accepting new USPT investor trust relationships in January 2008, and stopped accepting additional contributions under existing plans in August 2009.

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