Fraud Lawsuit Filed Against Regions

posted on:
October 26, 2007



A lawsuit has been filed against Regions Financial Corp. arising out of an alleged fraud that cost people $18 million of their retirement money. 

Birmingham-based Regions was accused of faulty oversight of bank accounts in the lawsuit filed in Tennessee. Thousands of people allegedly lost money in the scheme.

While Regions wasn't directly responsible for managing or investing the money, it is contended that Regions should have detected the fraud that was being committed by an outside company that controlled the accounts. That firm purported to collect payroll deductions from various employers, pool the money and send it off to be invested on behalf of the participating workers.

The company is now bankrupt and its owner in jail on dozens of fraud-related counts. The lawsuit was filed in U.S. bankruptcy court in Nashville by the court-appointed trustee overseeing the bankruptcy of the outside company that collected the retirement money.

Barry Stokes, a resident of Tennessee, whose 1Point Solutions billed itself to employers around the country as an administrator of 401(k) and other retirement plans, set up the scheme. Stokes' company agreed to keep records, open accounts into which employee money was deposited, and handle early withdrawals for hardships or termination. It's alleged in the lawsuit that Stokes had dozens of such accounts at a branch in Dickson, Tennessee and that as much as $47 million passed through the accounts over the years.

In 2006, Stokes was arrested by federal agents and charged with embezzling the retirement money, money laundering and a slate of related counts. It's alleged in the lawsuit that Stokes regularly transferred money collected from employees into his business and personal accounts. Regions is alleged to have collected $500,000 in fees over the years for transferring money between the accounts.

Interestingly, it's alleged that Stokes moved the accounts to Cincinnati-based Fifth Third Bank in 2006 and that bank closed them out a few months later for "improper activity." Stokes then moved the accounts back to Regions, according to allegations in the complaint.

If Regions was responsible for the stewardship of the funds then the bank may well have had a legal duty to protect the plaintiffs' funds. Investment accounts and trust funds usually carry fiduciary responsibility for the bank, but ordinary corporate accounts in most cases don't.

The trustee suing Regions alleged in the lawsuit the bank should have known Stokes had no right to withdraw employee money. It's stated in the complaint: "Regions/AmSouth knew that the funds deposited in such accounts came from customers of 1Point, and that the funds did not belong to 1Point, but were held in trust to be used solely for the participants and beneficiaries." It's noteworthy that AmSouth paid $50 million in penalties for failing to detect fraud and money laundering in a Mississippi branch.

AmSouth and Regions merged last year. This case will be an interesting one to watch as it develops through discovery and pre-trial motions.

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