Regions Bank 2010 Annual Report Download - page 205

announced that they were commencing administrative proceedings against Morgan Keegan, Morgan Asset
Management and certain of their employees for violations of federal and state securities laws and NASD rules
relating to the Funds. The proceedings contain various allegations, including that the net asset values of the
Funds were artificially inflated due to allegedly improper conduct related to the valuation of the securities held
by the Funds, and that the defendants failed to disclose certain risks associated with the Funds. The
administrative proceedings seek civil penalties, injunctive relief, disgorgement, rescission and other relief. Based
on the then current status of settlement negotiations, Regions believed that a loss on this matter was probable and
reasonably estimable. Accordingly, during the quarter ended June 30, 2010, Morgan Keegan recorded a non-tax
deductible $200 million charge representing the estimate of probable loss. Settlement negotiations and hearing
preparations are ongoing.
On July 21, 2009, the SEC filed a complaint in United States District Court for the Northern District of
Georgia against Morgan Keegan alleging violations of the federal securities laws in connection with auction rate
securities (“ARS”) that Morgan Keegan underwrote, marketed and sold. The SEC is seeking an injunction
against Morgan Keegan for violations of the antifraud provisions of the federal securities laws, as well as
disgorgement, financial penalties and other equitable relief for customers, including repurchase by Morgan
Keegan of all ARS that it sold prior to March 20, 2008. Beginning in February 2009, Morgan Keegan
commenced a voluntary program to repurchase ARS that it underwrote and sold to the firm’s customers, and
extended that repurchase program on October 1, 2009 to include certain ARS that were sold by Morgan Keegan
to its customers but were underwritten by other firms. As of December 31, 2010, customers of Morgan Keegan
owned approximately $54 million of ARS and Morgan Keegan held approximately $161 million of ARS on its
balance sheet. On July 21, 2009, the Alabama Securities Commission issued a “Show Cause” order to Morgan
Keegan arising out of the ARS matter that is the subject of the SEC complaint described above. The order
requires Morgan Keegan to show cause why its registration as a broker-dealer should not be suspended or
revoked in the State of Alabama and also why it should not be subject to disgorgement, repurchasing all ARS
sold to Alabama residents and payment of costs and penalties. Although it is not possible to predict the ultimate
resolution or financial liability with respect to the ARS matter, management is currently of the opinion that the
outcome of this matter will not have a material effect on Regions’ business, consolidated financial position,
results of operations or cash flows.
In April 2009, Regions, Regions Financing Trust III (the “Trust”) and certain of Regions’ current and
former directors, were named in a purported class-action lawsuit filed in the U.S. District Court for the Southern
District of New York on behalf of the purchasers of trust preferred securities offered by the Trust. The complaint
alleges that defendants made statements in Regions’ registration statement, prospectus and year-end filings which
were materially false and misleading. On May 10, 2010, the trial court dismissed all claims against all defendants
in this case. However, the plaintiffs have appealed the decision. In October 2010, a separate purported class-
action lawsuit was filed by Regions’ stockholders in the U.S. District Court for the Northern District of Alabama
against Regions and certain former officers of Regions. The lawsuit alleges violations of the federal securities
laws based on alleged actions similar to those that were the basis for the suit filed by purchasers of the trust
preferred securities, including allegations that statements that were materially false and misleading were included
in filings made with the SEC. Plaintiffs in these cases have requested equitable relief and unspecified monetary
damages. These class-action lawsuits are still early in their development and no classes have been certified.
Unless and until a class is certified, the scope of the class and claims remains unknown. There are numerous
factors that result in a greater degree of complexity in class-action lawsuits as compared to other types of
litigation. Due to the many intricacies involved in class-action lawsuits at the early stages of these matters,
obtaining clarity on a reasonable estimate is difficult which may call into question its reliability. At this stage of
the lawsuits, and in view of the inherent inability to predict the outcome of litigation, particularly where there are
many claimants, Regions cannot determine the probability of a material adverse result or reasonably estimate a
range of potential exposures, if any. Although it is not possible to predict the ultimate resolution or financial
liability with respect to these matters, management is currently of the opinion that the outcome of these matters
will not have a material effect on Regions’ business, consolidated financial position, results of operations or cash
flows.
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