Dec 19 (Reuters) - Regions Financial Corp agreed to a $22.5 million settlement with employees who claim to have lost lose money in their 401(k) retirement accounts because the regional bank exposed them to risky home loans and mismanaged some bond mutual funds ahead of the financial crisis.
According to settlement papers filed on Wednesday, employees lost money on Regions’ stock in their retirement accounts after the housing bubble burst, causing the bank’s portfolio of subprime, commercial real estate and exotic loans to sink in value. The employees claimed that the stock should not have been an investment option because Regions knew it was too risky.
Employees also accused Regions of offering as investment options some bond mutual funds that were advertised as safe but lost more than half their value because they were stuffed with subprime and other toxic debt. They also accused Regions of offering funds that carried excessive administrative fees.
A spokeswoman for Regions, which is based in Birmingham, Alabama, declined immediate comment on the settlement, which resolves breach of fiduciary duty claims.
The bond funds had been offered by Regions’ Morgan Keegan unit, now part of Raymond James Financial Inc.
Regions in June 2011 agreed to pay $210 million to settle charges by regulators including the U.S. Securities and Exchange Commission over the funds.
Wednesday’s settlement requires approval by U.S. District Judge Samuel Mays in Memphis, Tennessee, where Morgan Keegan was based. Lawyers for the employees will request attorneys’ fees later, court records show.
Regions has roughly $117 billion in assets and runs about 1,700 branches in 16 U.S. states.
In April 2012, the U.S. Department of the Treasury said Regions repaid the $3.5 billion it got under the 2008 Troubled Asset Relief Program, making it among the last of the larger U.S. banks to repay federal bailout funds.
On Friday, in a separate case, the U.S. Supreme Court agreed to weigh whether Fifth Third Bancorp, another regional bank, can be sued for having put company stock in its employee retirement plan ahead of the housing downturn.
The Regions case is In re: Regions Morgan Keegan Securities, Derivative and ERISA Litigation, U.S. District Court, Western District of Tennessee, No. 09-md-02009.
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