When banks or securities traders are convicted of criminal securities law violations, a further complexity may arise: parallel civil litigation. The Securities and Exchange Commission can bring both criminal charges and civil enforcement actions, as discussed on this blog earlier this month in the SEC case against Citigroup Global Markets Inc. On top of that, third parties harmed by criminal securities law violations can also bring civil suits seeking restitution, which is what has now happened to Regions Bank.
In 2009, the SEC criminally charged Regions with aiding and abetting the sale of securities by an unregistered dealer, which was a company called U.S. Pension Trust Corp. and its affiliate, which were not registered to sell securities. According to their 2010 convictions, the two companies sold securities to more than 14,000 clients, mostly from South America. The trustee arrangement with Regions was apparently meant to allow the foreign investors to buy U.S. mutual funds.
Both federal and Florida securities law require that securities themselves be registered for sale, and also that the party selling those securities be registered as a securities broker or dealer. In 2010, U.S. Pension Trust was convicted of selling securities as an unregistered dealer, fined $50 million and ordered to disgorge $62 million in unlawful profits.
In addition to failing to verify whether U.S. Pension Trust was registered, Regions Bank allegedly took a relatively active role in marketing the securities. The very day the SEC filed the aiding and abetting charges in 2009, Regions settled them by paying a $1 million fine -- no doubt believing the case was behind it.
Unfortunately for Regions, in 2011 a group of investors brought a federal class action lawsuit against U.S. Pension Trust and the bank for violating Florida securities law. The bank tried to have the case dismissed by arguing, among other claims, that it did not qualify as the "person making the sale" under Florida securities law. Because the plaintiffs alleged that Regions was actively involved in marketing the investments and soliciting investors, however, the court refused to dismiss the lawsuit.
Securities law cases are complex enough, and even when the accused is under the impression the situation has been resolved responsibly, additional complications can arise. In such cases, it is crucial to work with counsel who can both defend you against securities charges and any subsequent civil restitution lawsuits.
Source: Courthouse News Service, "Securities Dealer Claims May Leave Bank Liable," Iulia Filip, Oct. 22, 2013
