Regions Financial Corp. has agreed to pay $125 million to settle both a putative class action and shareholder derivative suit alleging it mismanaged three open-end mutual funds that tanked in 2007. The settlement ends two separate suits, part of a multidistrict litigation (MDL) over Regions’ allegedly risky holdings in asset-backed securities. Regions, Morgan Keegan and others will pay the class members $110 million, with another $15 million going to settle the derivative suit.
Both sets of Plaintiffs alleged the three funds, managed by Morgan Asset Management Inc., were marketed as safer than other high-yield funds or as good choices for investors trying to preserve capital, but Regions invested more in low-ranking tranches of mortgage-backed securities than peer bond funds, according to the Plaintiffs. Regions’ strategy incurred significant undisclosed liquidity, valuation and credit risks, the Plaintiffs said, and failed to properly audit their financial statement. Regions further misled investors by pointing to other funds it said could be used as benchmarks to judge Regions’ performance, but the composition of those funds were allegedly materially different.
The class action complaint, filed in 2007, alleged investors were not made aware of the significant risk incurred when investing in the funds. The funds lost much more than other similar funds because of the magnitude of their structured fixed-income securities holdings, according to the complaint. Regions settled another class action from the MDL in 2014, paying $22.5 million to end allegations it kept its stock as an employee retirement plan option even though the company’s risky loan practices made it an imprudent investment. When the bubble burst, Regions stock took a nose-dive and lost a whopping 93 percent of its value, those Plaintiffs said, adding that a “prudent fiduciary” would have realized that the company’s loan practices were creating excessive risk to the stock value and taken steps to protect plan assets that were in Regions stock. The class action, the derivative action, and the MDL are all in the same court.
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.