The SEC’s enforcement action against Regions Bank should serve as a warning to issuers as well as their directors, officers and general counsels about their business partners. SEC v. Regions Bank, Civil Action No. 09-CV-22821 (S.D. Fla. Filed Sept. 21, 2009); In the Matter of Regions Bank, Adm. Proc. File No. 3-13618 (Filed Sept. 21, 2009). In the civil injunctive action, the SEC alleged that the bank aided and abetted its business partners’ violations of Exchange Act Section 15(a)(1). In the administrative proceeding, the Commission claimed that the bank was a cause of the same partners’ violations of Sections 17(a)(2) & (3) of the Securities Act.

Regions Bank, a subsidiary of Regions Financial Corporation, is an Alabama state chartered institution which provides banking services in sixteen states. In 2001, the bank entered into a business relationship with unregistered broker dealers U.S. Pension Trust Corporation and U.S. College Trust Corp., both of which are based in Florida (collectively USPT). USPT used a network of 2,000 unregistered sales agents to sell mutual funds from well-known U.S fund companies through several retirement and college investment plans primarily to investors in Latin America. Investors entered into arrangements under which they either made multiple year annual contributions or a lump sum payment.

Under its arrangement with USPT, the bank served as a trustee of the plans and entered into individual trust agreements with each investor. Based on instructions from USPT, the bank distributed part of the investor funds to that company while the remainder was used to purchase mutual funds. In soliciting investors, USPT did not disclose to until March 2006 that it took up to 85% of their annual contributions and as much as 18% of investors’ lump-sum contributions. The bank deducted these sums from the amounts it received from investors. USPT took part of these amounts as profits and used the balance to pay commissions to its salesman and for insurance premiums. The bank then sent statements to investors showing the total amount of their investment, but not the amount paid in fees. According to the SEC, the bank knew or should have known that the extremely high commissions charged by USPT were not disclosed to investors.

From 1995 to the present, according to the SEC, over $255 million was received from about 14,000 investors and placed in the USPT plans. Regions Bank held about $95 million in mutual fund assets on behalf of approximately 11,000 investors.

The bank assisted in soliciting investors by providing USPT with a short video that featured two of its employees from the trust department touting the history of Region’s trust services. USPT also used the name of the bank and its history in other promotional materials to assure investors about the safety of their investment. Both US. Pension Trust and U.S. College Trust were named as defendants in a Commission enforcement action filed in 2007. SEC v. U.S. Pension Trust Corp., Case No. 07-22570 (S.D. Fla. Filed Sept. 28 2007). That action, which is in litigation, alleges violations of the antifraud provisions of the securities laws in connection with soliciting investors for the plans. See also Litig. Rel. 20315 (Sept. 28, 2007).

To settle the action, Regions Bank consented to the entry of a cease and desist order in the administrative proceeding. In the civil injunctive action the bank agreed to pay a civil penalty of $1 million which will be paid into a Fair Fund for the benefit of investors. See also Litig. Rel. 21215 (Sept. 21, 2009).