SEC Issues Administrative Ruling on Jeffrey C. Kuehr and Michael J. Willoughby

WASHINGTON, June 25 -- The Securities & Exchange Commission issued the following administrative proceeding:

In the Matter of JEFFREY C. KUEHR AND MICHAEL J. WILLOUGHBY, Respondents

ORDER INSTITUTING CEASE - AND - DESIST PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS , CEASE - AND - DESIST ORDER S, AND PENALTIES

I. The Securities and Exchange Commission ( " Commission " ) deems it appropriate that cease - and - desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ( " Securities Act " ), and Section 21C of the Securities Exchange Act of 1934 ( " Exchange Act " ), against Jeffrey C. Kuehr ( " Kuehr " ) and Michael J. Willoughby ( " Willoughby) (collectively , the " Respondent s " ).

II.

In anticipation of the institution of these proceedings, Respondent s ha ve submitted Offer s of Settlement (the " Offer s " ) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proc eedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission ' s jurisdiction over t h e m and the subject matter of these proceedings, which are adm itted, Respondent s consent to the entry of this Order Instituting Cease - And - Desist Proceedings Pursuant To Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act Of 1934, Making Findings and Imposing Remedial Sanctions , Cea se - And - Desist Order s, and Penalties , as set forth below.

III.

On the basis of this Order and Respondent s ' Offer s , the Commission finds 1 that:

SUMMARY

This proceeding arises from the misconduct of the Respondents and Thomas A. Neely, Jr., ("Neely") while employed by Regions Bank and its parent holding corporation, Regions Financial Corporation ( " Regions " ). During the quarter ended March 31, 2009, in accordance with Regions ' policies and procedures, personnel within Regions Bank ' s Special Asset Depa rtment ( " SAD " ) who reported up to the Respondents, initiated the procedures to place approximately $168 million of certain commercial loans (the " Loans " ) into non - accrual status. In March 2009, the Respondents and Neely , arbitrarily and without supporting documentation, took steps to keep the L oans in accrual status . Such steps by the Respondents and Neely to evade existing policies and procedures constituted a fraudulent scheme , prevented Regions from appropriately measuring impairment in accordance with Generally Accepted Accounting Principles ("GAAP"), rendered Regions ' financial statements for the quarter ended March 31, 2009 materially misstated and not prepared in conformity with GAAP , and evidenced a failure by Regions to maintain a system of intern al accounting controls sufficient to provide reasonable assurances that the L oans were recorded as necessary to permit the preparation of financial statements in conformity with GAAP .

RESPONDENTS

1. Jeffrey C. Kuehr , 50, was formerly an Executive Vice Presi dent and the head of Regions ' SAD. During the relevant period, Kuehr reported to Willoughby who at the time was Regions ' Chief Credit Officer ( " CCO " ) . Kuehr ' s employment with Regions concluded on December 29, 2010.

2. Michael J. Willoughby , 68, was forme rly a Senior Executive Vice President and Regions' CCO. As CCO, Willoughby directly reported to Regions' Chief Risk Officer. Willoughby's employment with Regions concluded on November 30, 2010.

RELATED PERSON AND ENTITY

3. Thomas A. Neely, Jr. , 53, was fo rmerly an Executive Vice President for Regions' Risk Management Credit Division where he reported to Willoughby. Neely also oversaw Regions' Risk Analytics Group and together with Kuehr functionally controlled Regions' SAD. Neely's employment with Region s concluded on November 30, 2010.

4. Regions Financial Corporation is a Delaware financial holding corporation headquartered in Birmingham, Alabama. Regions conducts its banking operations through its subsidiary Regions Bank, which is a member of the Feder al Reserve System. Regions ' common stock is registered with the Commission pursuant to Section 12(b) of the Securities Act and trades on the New York Stock Exchange under the symbol " RF. " As of December 31, 2013, Regions had approximately $117 billion in assets.

FACTS

Regions ' Tracking of Non - Accrual Loans

5. Throughout the relevant time - period, including the quarter ended March 31, 2009, Region ' s tracked and recorded its non - performing loans ( " NPLs " ) as part of both internal performance metrics and its r egular financial reporting. NPLs at Regions primarily consisted of loans in a non - accrual status.

6. Regions ' policies and procedures required that loans be placed on non - accrual status when it was determined that payment of all contractual principal an d interest was in doubt, or the loan was past due 90 days or more as to principal and interest, unless the loan was well - secured and in the process of collection. When a loan was placed in non - accrual status, uncollected interest accrued during the curren t year would be reversed and reduce Regions' interest income. In addition, placing a loan on non - accrual status served as a trigger for Regions to consider whether th e specific loan was impaired and thus how to determine an allowance for loan and lease lo sses in accordance with GAAP.

7. Regions ' policies and procedures provided that th e decision to place a loan i n non - accrual status was to be made by Relationship Managers ( " RMs " ) within SAD. RMs were responsible for reviewing loan file details , monitoring p ayments and communicating with borrowers . Under Regions ' policies and procedures , RMs had the greatest degree of knowledge within SAD of the relevant loan status and a borrower ' s ability to make payments of principal and interest.

8. Regions ' policies and p rocedures required that w hen RMs initiated an action to place a loan on non - accrual status, they would submit a supporting form to their r egional m anager that showed their conclusion and justified how they determined a loan should be placed in non - accrual status . Regions ' policies and procedures then provided for the r egional m anager to conduct a detailed review of the loan with the responsible RM, after which the approval was granted by the regional manager .

9. Once approval for non - accrual classificatio n was granted by the regional manager, Regions ' policies and procedures specified that any subsequent exception to classifying the loan in non - accrual status was required to be fully documented and justified on an approved " Recommendation to Continue Accru al Status " form.

10. Once the RM and the regional manager recommended that a loan should be classified in non - accrual status, it was then listed by SAD managers in the A sset Q uality F orecast report ( " AQF " ) . The AQF identified which loans had been recommended by the RM and regional manager for being placed on non - accrual status, and it forecasted charge - offs and nonperforming assets for the quarter.

11. The AQF was a principal forecasting tool of SAD that was prepared under the direction of the Respondents and Ne ely . The AQF was discussed weekly at meetings regularly conducted and attended by the Respondents. Neely and Willoughby also regularly utilized the AQF in presentations to Regions ' E xecutive Council , which consisted of , among others, Regions ' Chief Execu tive Officer ( " CEO " ) and Chief Financial Officer ( " CFO " ), in discussing current trends in NPLs.

12. The SAD , under the control of the Respondents and Neely, had authority over the preparation, content, and dissemination of the AQF . Once a loan recommended fo r non - accrual status by the RMs and regional managers was included on the AQF, the responsible RMs would complete information required for a processing list and submit it to Regions ' Risk Analytics Group . The processing list was designed as an electronic record documenting the specific actions for individual loans to be formally taken by Regions and reflected in Regions ' accounting systems. Neely maintained final authority over the processing list . F ollowing Neely ' s approval, his subordinates would submi t the processing list for the identified loans to be recorded as non - accrual in Regions ' accounting systems. Respondents ' Misclassification of Loans and Evasion of Regions ' Policies and Procedures during the Quarter Ended March 31, 2009

13. As of the begin ning of March 2009, Regions ' AQF identified NPLs of approximately $ 1 . 6 billion. Kuehr, Neely and Willoughby had discussed between themselves the then current AQF and NPLs. The AQF and related NPLs tracking for the quarter were made available to Regions ' CEO and CFO.

14. On or about March 13, 2009, Kuehr, Neely and Willoughby were informed by a subordinate that an error had resulted in an underreporting of NPLs by an amount approximating $200 million , or 13 % as reported i n the AQF data made available to Regio ns ' CEO and CFO.

15. On or about March 17, 2009, Willoughby was actively tracking and calculating how NPLs could be decreased by approximately $200 million so as to more closely approach the previously identified NPL target.

16. On or about March 17, 2009, Neel y suggested to Willoughby and Kuehr that a $6.8 commercial million loan be recorded as an accruing loan despite being recommend ed for non - accrual status by the assigned RM and regional manager. This loan was prevented by Neely, without objection from Will oughby and Kuehr, from being placed on the AQF or a processing list and was classified by Regions as being in accrual status a s of March 31, 2009 . Contrary to Regions ' policies and procedures, Respondents prevented the subject loan from being classified a s non - accrual without any documentation or justific ation.

17. On or about March 18, 2009, Neely and Willoughby instructed subordinates to take specific action s to remove from the AQF approximately $150 million of commercial loans that had been recommended by the assigned RMs and regional managers , in accordance with Regions ' policies and procedures , as being classified as non - accrual. Neely and Willoughby issued such instructions to their subordinates without any documentation or justification supporting the removal of these loans from the AQF, in direct contravention of Regions ' policies - 5 - and procedures. Kuehr , then head of SAD, thereafter was made aware of and did not object to this action by Neely and Willoughby . The ultimate effect of these instructions w as the improper classification of the Loans, representing approximately $168 million , as being in accrual status . Had Regions classified the relevant loans on non - accrual status in accordance with its policies, it would have prompted a determination that the identified loans were impaired in accordance with GAAP. That determination would have resulted in Regions recording a higher allowance for loan and lease losses.

See rest of the document here: http://www.sec.gov/litigation/admin/2014/33-9606.pdf

TNS 30TagarumaMar-140626-4780057 30TagarumaMar