VOL. 123 | NO. 68 | Monday, April 7, 2008
Regions Employees File Class-Action Complaint
By Andy Meek
The judges and court clerks who work in the Clifford Davis Odell Horton Federal Building are probably getting used to seeing the same names appear on local banking-related litigation.
Since December, seven separate lawsuits have been filed in U.S. District Court for the Western District of Tennessee, all of which involve a similar mix of claims: negligence, misrepresentation and securities fraud, to list a few. And all of the suits name Regions Financial Corp., its subsidiaries, including the company's Memphis-based asset management unit, and various company directors among the defendants.
At issue in each of those court actions is the abysmal performance of several mutual funds over the past year that were managed by Regions' Memphis subsidiary Morgan Keegan & Co. Inc. The most recent suit that extended the list of federal complaints was filed last Monday.
Groups of investors who collectively lost millions of dollars in the Regions Morgan Keegan funds are leading the charge in all of the suits except the most recent one. Many of them saw their retirement nest eggs, rainy day savings and large chunks of their net worth evaporate almost overnight.
But the recent suit filed in West Tennessee is concerned with a different kind of investor whose pocketbook got stung partly by the RMK mutual fund debacle: Regions' employees themselves.
Attorneys from law firms in Pennsylvania and Alabama filed a class action complaint March 31 on behalf of Regions employees who participate in the company's pension plan. The complaint was filed in West Tennessee and names Terry Hamby, a resident of Pinson, Ala., who was employed by Regions through Dec. 3, as one of the plaintiffs, according to The Daily News Online, www.memphisdailynews.com.
Other plaintiffs will be determined as the class action unfolds. Potential members of the class include participants and beneficiaries of the company plan between Nov. 4, 2006, and "the date that Regions discloses the full impact of its financial problems," according to the complaint.
The law firms of Stember Feinstein Doyle & Payne LLC, based in Pittsburgh and Birmingham, Ala.-based Wiggins, Childs, Quinn & Pantazis LLC, brought the complaint to "recover millions of dollars in losses to the plan which ... (was) caused by the defendants' fiduciary breaches."
The list of defendants named in the suit includes Morgan Asset Management Inc., Regions Bank, Regions Financial Corp. and various members of Regions' board of directors.
Part of the logic in filing the suit in Memphis is that Regions' Memphis-based subsidiary Morgan Asset Management is a fiduciary of the bank's pension plan.
And the new complaint is related in several respects to the earlier suits involving Morgan Keegan. For one thing, the same mutual fund holdings that hurt investors on an individual basis also impacted thousands of Regions' employee pension plans.
The plans were inappropriately loaded with company stock, the suit claims, at a time when Regions' share price was taking a beating because of a variety of housing-related woes. The company also has spent millions to stop the bleeding in its RMK funds.
Too early to tell
Meanwhile, the Birmingham, Ala.-based bank reported in a recent regulatory filing with the U.S. Securities and Exchange Commission that the potential effects of the various RMK-related lawsuits in West Tennessee could not yet be determined. That's apparently one reason the Regions employees who are potential members of the new class action were taken by surprise and seemingly have a reason to join the class action.
"If Regions, a mammoth and sophisticated financial institution, was unable to assess risks related to problems in its management of its funds, employee participants were in no position to evaluate those risks for purposes of determining whether Regions stock was an appropriate retirement investment," the complaint reads.
"Despite knowledge of undisclosed problems with Regions' loan portfolio and/or failure to diligently and prudently investigate these problems along with Regions' financial condition and reporting, defendant fiduciaries continued to publicly proclaim the high quality of Regions' loan portfolio ... and continued to allow the plan's fiduciaries to invest plan assets in Regions stock."
At least a handful of law firms from around the country are pursuing similar investigations into a related pension situation at Morgan Keegan. An attorney for one of those firms said a figure as high as $10 million has been mentioned as the amount of employee money invested in the RMK funds that lost more than half their value over the course of 2007.
In a recent supplement to a Morgan Keegan fund prospectus dated Nov. 1, the company addressed the slew of recent investor lawsuits related to the RMK fund losses.
"No class (action) has been certified, and each of the proceedings is at a preliminary stage. Thus, an estimate of the effect, if any, of these lawsuits on the funds cannot be made at this time."