SEC Settles Another Market Crisis Financial Fraud Action

The Commission resolved another financial fraud action stemming from the aftermath of the market crisis. This proceeding, initially brought in June 2014, named as a Respondent Thomas Neely, Jr., and E.V. P. of Regions Bank. In the Matter of Thomas A. Neely, Jr., Adm. Proc. File No 3-15945 (June 25, 2014).

Mr. Neely was in the risk management credit division. The Order alleged that in the first calendar quarter of 2009 the special asset department initiated procedures to place about $168 million of commercial loans into non-accrual status. Mr. Neely circumvented the banks controls and, without supporting documentation, took steps to keep the loans in accrual status. His actions, which evaded the bank’s controls, prevented Regions from appropriately measuring impairment in accordance with GAAP.

As a result, according to the Order, Regions failed to maintain a system of internal accounting controls sufficient to provide reasonable assurances that the loans were recorded as necessary to permit preparation of financial statements in conformity with GAAP. The bank also failed to keep books, records and accounts in reasonable detail, which accurately and fairly reflected the loans. Since those books, records and accounts were incorporated into Regions’ consolidated financial statements for the quarter ended March 31, 2009, the income before taxes for that quarter was overstated by $16 million and net income was overstated by $11 million. Earnings per share were overstated for the quarter by $0.02 per share. Those results were incorporated into filings made with the Commission. The Order alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) , 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 20(b).

Mr. Neely resolved the charges after initially contesting them, consenting to the entry of a cease and desist order based on the Sections cited in the Order. In addition, he agreed to the entry of an officer and director bar for a period of five years and will pay a civil penalty of $100,000.

Previously, the Commission settled with two other bank officers. In that proceeding the Order named as Respondents Jeffrey C. Kuehr, E.V.P of Regions’ Bank risk management credit division and Michael J. Willoughby, a senior EVO and Regions’ CCO. The Order alleged violations of the same Sections as the Order regarding Mr. Neely. Messrs. Kuehr and Willoughby each consented at the time the action was filed to the entry of a cease and desist order based on the Sections cited in the Order. Each man also agreed to the entry of an order barring them from serving as an officer or director of a public company for five years. In addition, each Respondent will pay a penalty of $70,000. In the Matter of Jeffrey C. Kuehr, Adm. Proc. File No. 3-15946 (June 25, 2014)

The bank entered into a deferred prosecution agreement, in recognition of its cooperation and extensive remedial undertakings. It will also payed a penalty of $26 million that will be offset provided it pays a $46 million penalty assessed by the Federal Reserve. The bank will pay a $5 million penalty to the Alabama Department of Banking.