The SEC Sues Regions Bank for Violations of Federal Securities Laws
The United States Securities and Exchange Commission (“SEC”) has sued Regions Bank, successor to Union Planters Bank, for its role as trustee of an investment plan through which unregistered broker-dealers, U.S. Pension Trust Corp. (“US Pension Trust”) and U.S. College Trust Corp. (“US College Trust”) (collectively, “USPT”) allegedly defrauded approximately 14,000 investors. According to the SEC’s allegations, USPT charged exorbitant, undisclosed commissions and fees in connection with the sale of mutual funds. The complaint accuses Regions Bank of violating Federal securities law and aiding and abetting USPT’s violations of Federal securities laws.
Using a network of approximately 2,000 unregistered sales agents, US Pension Trust and US College Trust offered and sold mutual funds to investors residing primarily in Latin America through a trust created at a U.S. bank. Until March 2006, neither USPT nor Regions disclosed that it took up to 85% of investors’ annual contributions, and as much as 18% of investors’ lump-sum contributions, to pay exorbitant sales commissions to sales agents and profits to itself.
According to the SEC, Regions (or predecessor Union Planters Bank) has served as trustee of the USPT plans since October 2001 and, in that capacity, entered into individual trust agreements (“Trust Agreement”) with each investor and followed USPT’s instructions to distribute a portion of the investors’ contributions to USPT and use the remainder of the contributions to purchase mutual funds. The SEC has alleged that Regions knew or should have known that these exorbitant commissions and fees were not disclosed in USPT’s marketing materials or in any other document that US Pension Trust or US College Trust provided to investors. The SEC also has alleged that the Trust Agreement was misleading because it stated, among other things, that fees “may be paid” to USPT – when they always were. And although the Trust Agreement discloses Regions’ own, relatively nominal trust fees, it did not disclose the nature and amounts of the commissions and fees USPT charged to investors.
Specifically, US Pension Trust and US College Trust have charged annual fees ranging from 70% to 85% from investors’ first year’s contributions, 22% to 35% from investors’ second through fifth year contributions, and up to 23% from investors’ sixth through tenth year contributions. On lump-sum plans, USPT has charged from 12% to 18% from investors’ single contributions. These fees are used to pay exorbitant commissions to sales agents, insurance premiums for annual plan investors, and a “net profit” on every contribution for USPT.
The only fees disclosed in the USPT marketing materials are those charged for the bank’s trust services. Although USPT revised its marketing materials in 2006 to disclose the commissions, fees, and profits they deduct from investors’ contributions each year, it did not provide any of these new disclosures to existing investors who have continued to make contributions under their investment plans.
Regions Bank is an Alabama state-chartered bank. It became the trustee in connection with the USPT investment plans after it merged with Union Planters Corp. in July 2004. Union Planters began serving as trustee in October 2001, assuming the trustee duties from another national bank.
US Pension Trust and US College Trust are Florida corporations with their principal places of business in Coral Gables, Florida. Neither entity has ever been registered with the SEC as a broker, dealer, or in any other capacity.
USPT’s marketing materials tout the safety of Latin American investors investing with USPT by, among other things, emphasizing that Regions is a major, long-standing U.S. bank with significant trustee experience. The marketing materials also claim that Regions applies “the most prudent approach” in the “management of assets,” and that USPT’s plans are subject to oversight by “the Federal Reserve Bank, the Comptroller of the Currency, internal and external auditors, and regulation by the Securities and Exchange Commission.”
The SEC has alleged that these statements are misleading because Regions did not “manage” trust assets, but rather, served as directed trustee. Moreover, USPT’s investment plans were not subject to regulatory review.
Regions also created a video that USPT posted on its website. The video featured two Regions trust department employees who touted the history of the bank and Regions’ trust services. The video welcomed USPT and its “customers” and claimed that Regions’ trust department had been protecting trust clients’ interests for over 100 years. The video presumably served to assure investors of the safety of investing with USPT because of Regions’ role as trustee.
From 1995 to the present, approximately 14,000 investors, mostly residing in Latin America, have invested more than $255 million through US Pension Trust’s US College Trust’s investment plans.