U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21215 / September 21, 2009
SEC v. Regions Bank, Civil Action No. 09-CV-22821-COOKE/Bandstra (S.D. Fla. Filed September 21, 2009)
SEC Files Settled Civil Action against Regions Bank in Which Regions Agrees to Pay $1 Million Civil Penalty
The Securities and Exchange Commission (Commission) announced today that on September 21, 2009, it filed a settled civil action against Regions Bank (Regions) in the District Court for the Southern District of Florida, for its role in connection with a Florida-based offering fraud by unregistered broker-dealers U.S. Pension Trust Corp. and U.S. College Trust Corp. (collectively, USPT). For over six years, Regions or its predecessor bank served as trustee of investment plans through which USPT defrauded thousands of investors (residing primarily in Latin America) by charging exorbitant, undisclosed commissions and fees in connection with the sale of mutual funds.
The Commission's Complaint alleges that since 1996, USPT has offered and sold to investors mutual funds, through a trust created at a U.S. bank. USPT sells the funds through a series of investment plans that give investors a choice of making either annual contributions for multiple years or a single, lump-sum contribution. Until March 2006, USPT did not disclose to new investors that it subtracted from their contributions up to 85% of investor's initial contributions in the annual plans, and as much as 18% in the single contribution plans, for payment of sales commissions, USPT's "net profit," and insurance premiums.
According to the Commission's Complaint, Regions — which has served as trustee of the plans since October 2001 (through its predecessor bank) — contributed to the investment scheme because a primary selling point for USPT's investment plans was the trust relationship created between the investor and the U.S. bank. As trustee, Regions allowed USPT to use its name in marketing materials, prepared a promotional video that was posted on USPT's website, and sent representatives to Latin America to meet with sales agents and prospective investors to explain Regions' role as trustee. Regions entered into individual trust relationships with all investors, processed their contributions, and purchased the selected mutual funds for them. However, when it sent them confirming certificates (prepared by USPT but signed by a Regions representative), it failed to disclose the amounts taken out for USPT's fees and commissions. Regions' own Trust Agreement and Trust Summary were also misleading and failed to disclose the nature and amounts of the commissions and fees that USPT charged (except for Regions' own trust fees). Regions stopped accepting new USPT investor trust relationships in January 2008, and stopped accepting additional contributions under existing plans in August 2009.
The Commission's Complaint charges Regions with violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and with aiding and abetting USPT's violations of Section 15(a)(1) of the Securities Exchange Act of 1934 by serving as trustee. Regions has agreed to settle the civil action by consenting to the entry of a Final Judgment, without admitting or denying the allegations of the Commission's Complaint, providing for payment of a civil penalty of $1 million, which will be paid into a Fair Fund for the benefit of investors injured in the USPT offering fraud. Simultaneously with the filing of the Commission's complaint, the Commission issued a cease-and-desist Order in a settled administrative proceeding ordering Regions to cease and desist from committing or causing any violations or future violations of these provisions.