Unregistered Broker Case Settled for $13 Million
MIAMI (CN) - Regions Bank will pay thousands of investors $13 million to settle claims that it helped an unregistered broker sell $250 million worth of "investment plans," a federal judge ruled.
For years, Regions Bank served as a trustee for U.S. Pension Trust (USPT), which had sold multisecurity investment plans to more than 14,000 people residing primarily in South America. The Securities and Exchange Commission charged Regions in September 2009 with aiding and abetting in the sale of securities by an unregistered dealer in connection with the bank's involvement with USPT.
Finding that USPT had unlawfully engaged in the sale of securities as an unregistered dealer, a federal judge ordered the firm in 2010 to disgorge $62 million and pay $50 million in civil penalties.
Regions Bank settled the SEC claims the same day they were filed, but a class of investors sued the bank in 2011, claiming it had violated Florida law by helping the dealer sell the plans, which, they argued, qualified as securities.
Colombian nationals Laura Yelitza Cifuentes and Merle de las Mercedes Silva Castro filed an amended class action complaint in February 2012 as the heirs of one of the original class members. A third representative, Gerardo Carvajal, joined as plaintiff in 2013.
Regions denied liability, arguing that it did not qualify as a "person making the sale" under Florida's statute regulating the sale of securities.
U.S. District Judge Federico Moreno twice refused to dismiss the civil claims, finding that the class representatives had standing and that the statute of limitations had not lapsed.
The investors filed a separate lawsuit in state court, seeking transfer of $12.5 million remaining from USPT money to federal court for the benefit of the class.
After producing more than 400,000 pages of documents and deposing witnesses in Colombia and several U.S. states, Regions and 5,468 investors who bought investment plans between September 2006 and August 2009 reached a settlement on the eve of the trial scheduled for November 2013.
The settlement, which creates a common fund in the amount of more than $13 million, won Moreno's approval last week. It provides that class members will be paid based on the amount they invested during the class period plus interest, less any return received.
Had the class failed to establish that the investment plans qualified as securities, or that Regions qualified as a seller of securities, they most likely would not have recovered anything, according to the March 20 order.
Noting that the range of possible recovery was anywhere from $0 to more than $38 million in alleged damages, Moreno called the settlement "fair, adequate and reasonable."
A trial would have increased legal costs and could have taken years, considering the case took more than two years to get to the point of settlement, the order adds.
The judge certified the investors' class, which includes 5,468 members, out of which only 20 have chosen to "opt out," and retained jurisdiction over the administration and distribution of the settlement money.
Attorneys for the class will recover $3.9 million in legal fees and more than $500,000 in expenses, which represents 30 percent of the common fund, while the class representatives will receive $5,000 each in service awards, the order states.
A spokeswoman for Regions Bank declined to comment on the settlement.