Region's Financial Settles For $210M Over Misleading Investors On Subprimes

CHARLOTTE, N.C./NEW YORK (Joe Rauch and Jonathan Stempel) - Regions Financial Corp (RF.N) agreed to pay $210 million to settle regulatory probes that its Morgan Keegan unit fraudulently misled investors about the risks of mutual funds filled with risky subprime mortgages.

Regions, a large southeast U.S. regional bank, also said it hired Goldman Sachs & Co to explore "potential strategic alternatives" for Morgan Keegan, suggesting a possible sale of some or all of the brokerage and investment banking unit it has owned since 2001.

The settlement with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and five state regulators stemmed from roughly $1.5 billion of estimated investor losses tied to five Morgan Keegan funds.

Some of these funds, including "investment-grade" funds that Morgan Keegan marketed as conservative investments for older investors, lost more than 50 percent of their value in 2007 as credit conditions deteriorated.

James Kelsoe, a former Morgan Keegan portfolio manager, agreed to a $500,000 fine and permanent securities industry ban, the SEC said. A Morgan Keegan comptroller, Joseph Thompson Weller, agreed to a $50,000 penalty, it added.

"The falsification of fund values misrepresented critical information exactly when investors needed it most -- when the subprime mortgage meltdown was impacting the funds," SEC enforcement chief Robert Khuzami said in a statement. "Such misconduct does grievous harm to investors."

Regulators from Alabama, Kentucky, Mississippi, South Carolina and Tennessee were also part of the accord.

Regions said it had previously set aside funds covering the full settlement. The accord calls for Regions to pay $200 million into funds administered by the SEC and the states for investors. It will also pay a $10 million fine to the states. The payment into the SEC fund includes a $75 million penalty.

Morgan Keegan is based in Memphis, Tennessee, and Regions in Birmingham, Alabama.

On Tuesday, the SEC announced JPMorgan Chase & Co's (JPM.N) (JPM.N) agreement to pay $153.6 million to settle charges that it defrauded investors who bought mortgage securities sold just before the nation's housing market collapsed.

TARP NOT YET REPAID

Unlike most other large U.S. banks, Regions has yet to receive regulatory approval to repay the $3.5 billion it took from the Treasury Department's Troubled Asset Relief Program.

The settlement "gives Regions greater flexibility with respect to the Morgan Keegan franchise and the ability to explore opportunities that are consistent with our strategic and capital planning initiatives," Regions Chief Executive Grayson Hall said in a statement.

It is unclear what Regions might fetch for Morgan Keegan.

"Regions needs a great deal of capital and selling Morgan Keegan would be a great way to get part of the way there," said Richard Bove, a banking analyst at Rochdale Securities LLC. "Its tough to say what price they could get."

In its original complaint, the SEC said Morgan Keegan fraudulently hid the falling value of some mutual funds between January and July of 2007, and "recklessly" sold fund shares to investors based on inflated prices.

The SEC also accused Kelsoe of directing his accounting department to make repeated, arbitrary "price adjustments" to boost the securities' perceived value, and Weller of failing to ensure proper pricing for the securities and mutual funds.

It is rare for any bond mutual fund to suffer losses of the magnitude suffered by the Morgan Keegan funds, and Morgan Keegan has faced a slew of related arbitration proceedings.

"No investor is giving up any rights or any claims" in such proceedings, Joseph Borg, director of the Alabama Securities Commission, said on a conference call.

Hyperion Brookfield Asset Management Inc took over management of some Morgan Keegan funds in 2008.

In afternoon trading, Regions shares were up 5 cents at $6.35 on the New York Stock Exchange.

(Editing by Andre Grenon, Dave Zimmerman)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Dr Jimmy and Mr Jim]

09:00 PM on 06/23/2011

I wonder if any of these bankers cheated their own mothers?

[Scent]

07:12 PM on 06/23/2011

As long as the biggest criminal parasites ever to visit this planet can buy themselves out of jail with a small part of the money they stole and then buy politicians to make it worse yet nothing will change.

[giwel7]

11:31 AM on 06/23/2011

an ex morgan stanley exec wasjust "fined" 120thousand for his part in selling millions of illigal products

[jtabs]

09:03 AM on 06/23/2011

Reminds me of an old Abbott and Costello routine I once saw where Abbott was splitting up money between himself and Costello as follows: "One for you, one two for me....", where the banking industry give back one for every two+ they made, only this time it's not funny.

[norkas]

08:20 AM on 06/23/2011

This is just one of many examples why Democratic voter and Republican voters will revolt in America peacefully and commit to a new party where the true meaning of ETHICS is followed.

I am shocked about how many Democratic voters and Republicans use the words revolution is going to arrive here soon in America. They speak of a revolution in the content that the people will rise a join together to form a honest government.

Democratic voters and Republicans voters agree on some much that the only ones truly separating the vast majority in America are the lobbyist and politicians. I have very good friends from both parties an asked them list of very important questions all of them agreed.

The supreme court decision (about 2 years ago) to all business to give UNLIMITED CAMPAIGN CONTRIBUTIONS is only going to make everything worse in America and we lost the true meaning of our vote!

[boston 67]

07:24 AM on 06/23/2011

This is so little money for such a huge theft! And where are criminal
charges???? Those banksters have enough money in their portfolio for these types
of pay offs...they will continue to rob us blind if we, the people don't stand
up NOW! The solution for the foreclosure crisis right now is in a prosecution of all
those banksters who brought us here, not making a deal with the same people who
are responsible for a demise of America's homeowners!
Please read about MA Register of Deeds – John O’Brien - the first register in
the nation to say NO to fraud, MERS, robosigning - a real people’s hero:
http://tinyurl.com/3qsu87x The banks will never comply with a law, unless they're criminally prosecuted for their fraud and demise of this country!

[mannapat]

09:03 AM on 06/23/2011

We see the problem, but the politicians are blinded by the money they get from the crooks, so they either don't see it, or don't care. Then they take the money and give it to the media to get elected and remain in power. The media just wants the money, and can't see the erosion of our democracy, or they just don't care, because their pockets are loaded. And we, the voters, watch the tripe on TV, believe most of it, and continue to vote for the politicians who feed us the garbage and rob us of the country we knew. I just wonder how much longer we can continue to be convinced that we are exceptional while the American Dream turns into a nightmare.

[Sundialsvc4]

06:55 AM on 06/23/2011

It can't be any wonder to anyone by now.

If you have completed a multi-billion dollar SWINDLE and the price you pay is 0.2% of what you stole, and for that price the case is "settled" so it will never go to criminal court ... hey, that's damn cheap.

(Of course, we don't readily see how much the bribe expenses are, that lead to it.)

[DiogenesOfAlaska]

05:39 AM on 06/23/2011

I have a product innovation on offer for Wall Street banks:

Just offer to pay for the legal advice that your clients will need by the time they sue you for the crap that you sold to them.

I'm sure your business will go through the roof with that little line added in the fine print. And the law firms will love it, too.

Did I just provide the basis for the recovery or what?

Cheat until the sun goes out and then let the lawyers have their fun with sorting it all out. Sounds like a win-win doesn't it?

Or maybe I was really only wondering what those folks meant with their "caveat emptor". Those Romans back then. The guys who invented the rule of law.

Maybe it worked only until the northern hordes conquered them. Or maybe the northern hordes conquered them because they had already self-destructed - with the emptying out of their allegiance to the spirit of their law.

When will Wall Streeters realize that in the long run, acting like cheating is ok is the same thing as tearing up contracts right now? The only difference is in the delay. But the outcome is the same, of necessity.

[HansJurieMuller]

03:24 AM on 06/23/2011

Always stay ahead in the game, learn from the best!!!
http://www.buffetinvestingworld.com/

[ColoradoCool]

02:50 AM on 06/23/2011

So these grifters bought politicians who watered down the regulations and looked the other way while they defrauded the American people of BILLIONS of dollars and collapsed the entire financial system. The Bushies who were on board with the scam then bailed out the defrauders enabling them to use that cheap money to CLEAN UP yet again and pay the crooks at the top HUGE BONUSES. Now the banks are being charged a PITTANCE for perpetrating the criminal behavior in the first place which they will pay out of the profits it made from investing the no-interest, bail out money! WHERE IS THE JUSTICE IN THAT? WE WANT THE CROOKS TO GO TO JAIL!!!

[Lolie Culley]

12:42 AM on 06/23/2011

The best justice system money can buy. Only in America.

[Lolie Culley]

12:39 AM on 06/23/2011

This is what they call double jeopardy, they use peoples money to buy paper investments and god knows how many times they sold the same papers over and over again, then this papers defaulted because of high unemployment across the country. They are evicting homeowners which probably have shares investment to the home they are at right now and lost their investment shares at the same time. The only winners are the banks stealing peoples homes and sell them with Chinese and Canadian Citizens. Homeowners lost everything and banks won twice. Only in America.

[roxette]

12:15 AM on 06/23/2011

They destroyed people lives, they destroyed theirs dreams, they almost destroyed the country, they must be responsible for a few suicides. All along they knew what they were doing and now all they have to do is paid a lousy 210$ million fine and continue their merry way.

[GerryS]

11:58 PM on 06/22/2011

regardleess of the losses,

the fine should have been 2x- 3x higher-----------------

[xilduq]

11:55 PM on 06/22/2011

steal $billions, admit no wrongdoing, pay $millions in fine, rinse, repeat

your "justice" system at work - the BEST money can buy

[GerryS]

11:59 PM on 06/22/2011

the supreme court you always wanted,

everything for corporations,,,,,, fook everbody else-------------------