william e. burges, et al. v. bancorpsouth, inc., et al. 14-cv-01564 … · 2016. 3. 8. · case...
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UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
WILLIAM E. BURGES and ROSE M. BURGES, Individually and on Behalf of All Others Similarly Situated,
Plaintiffs,
vs.
BANCORPSOUTH, INC., et al.,
Defendants.
Civil Action No. 3:14-cv-01564
The Honorable Aleta A. Trauger
CLASS ACTION
LEAD PLAINTIFF’S COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
JURY DEMAND
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TABLE OF CONTENTS
Page
I. INTRODUCTION ...............................................................................................................1
II. JURISDICTION AND VENUE ..........................................................................................5
III. PARTIES .............................................................................................................................5
IV. CONTROL PERSONS ........................................................................................................8
V. FACTUAL ALLEGATIONS ..............................................................................................9
A. Background and Pre-Class Period Cost Cutting ......................................................9
B. BancorpSouth Announces Its First Bank Acquisitions Since 2007, Assuring Investors that the Acquisitions Will Close by the End of the 2Q14 .......................................................................................................................11
C. In Announcing the Mergers, BancorpSouth Claimed to Be in Compliance with Various State and Federal Laws and Regulations, Including BSA/AML Regulations, Which Was Critical in Order for the Mergers to beApproved by Regulators ...................................................................................16
D. Defendants Knew that Since at Least 2012, as the Economy Recovered from the Financial Crisis, the Banking Industry Has Been Focused on BSA/AML Compliance .........................................................................................21
E. The FDIC Initiates a Target Review into BancorpSouth’s BSA/AML Compliance Program; Defendants Fail to Disclose the Target Review or the Fact that BSA/AML Deficiencies Will Delay Mergers ...................................25
F. BancorpSouth Stuns Investors by Revealing that the Bank’s BSA/AML and Fair Lending Policies Are Under Review by Federal Regulators and Disclosing that the Ouachita and Central Community Mergers Will Be SubstantiallyDelayed ............................................................................................32
G. BancorpSouth Withdraws Its Applications for Regulatory Approval of the Ouachita and Central Community Mergers and Enters into a Consent Order with the FDIC Evidencing Massive Failures in BSA/AML Compliance............................................................................................................35
VI. DEFENDANTS MADE MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS WHICH FAILED TO DISCLOSE THEIR NON-COMPLIANCE WITH BSA/AML REGULATIONS, OR THE DELAYS TO THE PENDING MERGERS .......................................................................................39
A. January 8, 2014 Press Release and January 9, 2014 Form 8-K .............................40
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Page
B. January 22, 2014 Press Release and Form 8-K, and January 23, 2014 ConferenceCall .....................................................................................................40
C. February 12, 2014 Registration Statement .............................................................42
D. February 25, 2014 Form 10-K ...............................................................................44
E. February 28, 2014 Registration Statement .............................................................44
F. March 10, 2014 Ouachita Proxy Statement ...........................................................46
G. March 24, 2014 Central Community Proxy Statement ..........................................48
H. April 21, 2014 Press Release and April 22, 2014 Form 8-K .................................49
I. April 22, 2014 Conference Call .............................................................................50
J. May 13, 2014 Conference Call ..............................................................................52
VII. ADDITIONAL SCIENTER ALLEGATIONS ..................................................................52
VIII. LOSS CAUSATION ..........................................................................................................57
IX. APPLICABILITY OF THE PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET..................................................................................................................59
X. CLASS ACTION ALLEGATIONS ..................................................................................60
COUNTI .......................................................................................................................................62
COUNTII ......................................................................................................................................64
PRAYER FOR RELIEF ................................................................................................................66
JURY TRIAL DEMANDED .........................................................................................................67
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I. INTRODUCTION
1. This is a federal securities class action brought on behalf of all persons who
purchased or otherwise acquired the common stock of BancorpSouth, Inc. (“BancorpSouth,” the
“Company,” or the “Bank”) from January 8, 2014 through July 21, 2014, inclusive (the “Class
Period”). This action seeks to recover damages caused by defendants’ violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§78j(b) and
78t(a), and Rule 10b-5 promulgated thereunder by the United States Securities and Exchange
Commission (“SEC”), 17 C.F.R. §240.10b 5.
2. BancorpSouth is a $13 billion financial holding company which owns BancorpSouth
Bank as a wholly owned subsidiary. The Company is headquartered in Tupelo, Mississippi, and has
substantial operations in Tennessee and other southeastern states, including Arkansas, Missouri,
Mississippi, Alabama, Florida, Louisiana, and Texas.
3. During the Class Period, BancorpSouth, Chief Executive Officer (“CEO”) James D.
Rollins III (“Rollins”), Chief Operating Officer (“COO”) and President James V. Kelley (“Kelley”),
and Chief Financial Officer (“CFO”) William L. Prater (“Prater”) (collectively, “Defendants”), made
materially false and misleading statements and omissions regarding (i) the Company’s compliance
with critical anti-money laundering (“AML”) and Bank Secrecy Act (“BSA”) regulations, as well as
the Company’s fair lending practices; and (ii) the closing of two pending acquisitions.
4. On four separate occasions during the Class Period, Defendants stated that
BancorpSouth had “complied in all material respects with and are not in material default or violation
under any applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Body relating to BancorpSouth or BancorpSouth Bank, including all Banking Laws,”
and that all Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”)
required under applicable BSA/AML regulations had been “properly filed and maintained.”
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5. In fact, Defendants knew, or recklessly disregarded, that the Company was nowhere
close to being in compliance with BSA/AML regulations. Under the BSA/AML laws, a BSA/AML
compliance program must provide for the following minimum requirements, commonly known as
the “4 Pillars” of BSA compliance: (i) a system of internal controls to ensure ongoing compliance;
(ii) independent testing of BSA/AML compliance; (iii) a designated BSA compliance officer; and
(iv) training for appropriate personnel. As would later be revealed, BancorpSouth was not in
compliance with respect to any of the 4 Pillars.
6. That federal regulators would be scrutinizing the Company’s BSA/AML compliance
should not have come as a surprise. Since at least 2012, bank regulators, industry publications,
compliance consultants, and lawyers were sounding the alarm bell about the critical importance of
ensuring compliance with BSA/AML regulations. In addition, numerous banks, both big and small,
were being required to enter into consent orders and pay record settlements as a result of BSA/AML
compliance failures.
7. Defendants, however, did not view complying with federal banking rules and
regulations to be as important as cutting costs and increasingly profitability. Defendants cut
approximately 10% of BancorpSouth’s staff between 2012 and 2013, increasing profitability, but
further reducing the Company’s ability to comply with BSA/AML regulations. At the same time,
Rollins openly disparaged BancorpSouth’s regulators during industry conferences, likening them to
“little kids . . . not playing well in the sandbox with each other,” who were arbitrarily enforcing
“flavor of the week” regulations.
8. On July 21, 2014, the proverbial chickens came home to roost. BancorpSouth issued
a press release announcing that federal regulators had identified deficiencies in the Company’s
BSA/AML compliance programs, and that the Consumer Financial Protection Bureau (“CFPB”) was
conducting an investigation of the Company’s fair lending practices. The Company would
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subsequently be forced to enter into a Consent Order with the Federal Deposit Insurance Corporation
(“FDIC”) and the Mississippi Department of Banking and Consumer Finance, which mandated
drastic reforms of their BSA/AML compliance practices.
9. The Consent Order, as well as the Company-required remediation plan, demonstrated
the vast breadth of the Company’s non-compliance. For example:
BancorpSouth did not have in place a system of internal controls designed to limit and control risks and to achieve compliance with the BSA. A risk assessment indicated that the Company’s internal controls with respect to customer due diligence and transaction monitoring needed “significant enhancements” in order to “more completely and accurately identify suspicious activity.”
BancorpSouth did not have anywhere close to an adequate number of qualified staff in its BSA Department. The Company had a mere three people in its BSA Department, and was required to increase this number over ten-fold, to 35. BancorpSouth also failed to have a qualified BSA Compliance Officer, as required by federal regulations.
BancorpSouth was required to complete a “Look Back Review,” going back to June 2013, which is only required when regulators determine that a bank has exhibited fundamental infirmities in its BSA/AML compliance program, and is viewed by many as a punitive measure designed in part to punish an institution for serious compliance failures.
BancorpSouth failed to maintain a training program adequate to achieve compliance. The Company did not provide employees with the time and resources necessary to understand their BSA/AML obligations, and failed to adequately assess the effectiveness of their training procedures.
10. Remediating these deficiencies would cost the Company substantial money and time.
The Company spent over $3 million in FY14 alone in its attempts to become compliant with its
BSA/AML obligations, and estimated that continuing compliance would cost an extra $3 million
annually. Further, at the time this Complaint was filed, the FDIC had still not signed off on the
Company’s remediation efforts and declared them to be satisfactory.
11. Defendants’ BSA/AML violations had ramifications far beyond the time, expense,
and reputational damage caused by the Company’s non-compliance. The July 21, 2014
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announcement also disclosed that the FDIC would not at that time provide the necessary regulatory
approval for two acquisitions that were viewed by Defendants and Wall Street analysts as important
to the Company’s future growth plans.
12. In January 2014, the Company announced that it had entered into definitive merger
agreements with Ouachita Bancshares Corp. (“Ouachita”) and Central Community Corporation
(“Central Community”). Defendants stated that these mergers would help expand the Company’s
operations into lucrative new markets, as well as improve the Company’s efficiency by leveraging
their existing infrastructure into a larger operation. In numerous conference calls, press releases, and
filings with the SEC, Defendants assured investors that these acquisitions were expected to close by
2Q14 and that they had no reason to believe that the closings of the transactions would be delayed.
13. In fact, Defendants knew, or recklessly disregarded that, because of BancorpSouth’s
BSA/AML compliance failures, the acquisitions were highly unlikely to be approved by regulators
absent time-consuming and costly remediation efforts. Regulators had initiated a Target Review of
BancorpSouth’s BSA/AML compliance programs in February 2014 (which was also not disclosed to
investors), and the Federal Reserve had specifically warned community banks in 2013 that
materially deficient BSA/AML programs could inhibit expansionary activities.
14. Defendants, as senior management, were ultimately responsible for ensuring that the
Bank maintained an effective BSA/AML compliance program and that the Company’s program
complied with the “4 Pillars” of BSA/AML compliance. In fact, federal regulations specifically
require that the Company’s BSA/AML compliance program must be in writing, approved by the
Board of Directors (“Board”), and noted in the board minutes. Defendants were also responsible for
creating a “culture of compliance” to ensure Company-wide adherence to the Bank’s BSA/AML
policies, procedures, and processes, but failed to do so, instead prioritizing Rollins’ cost-cutting
measures.
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15. Now, however, the acquisitions would be delayed indefinitely and, as of the filing of
this Complaint, have yet to close.
16. In the two days following Defendants’ July 21, 2014 announcement, which revealed
the relevant truth that had been previously concealed from the market, BancorpSouth’s stock
declined from $23.41 to close at $21.14 on July 23, 2014 – a decline of almost 10%. This decline
caused tens of millions of dollars of losses to BancorpSouth investors, who relied on the accuracy of
Defendants’ statements and suffered damages when the truth was revealed.
17. This action seeks to recover for these losses.
II. JURISDICTION AND VENUE
18. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the
1934 Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. §240.10b-5, promulgated
thereunder by the SEC. This Court has jurisdiction over the subject matter of this action pursuant to
28 U.S.C. §1331 and Section 27 of the 1934 Act, 15 U.S.C. §78aa.
19. Venue is proper in this District pursuant to Section 27 of the Exchange Act, as the
Defendants transact business in this District. BancorpSouth has approximately 28 branch offices in
Tennessee. BancorpSouth Bank’s wholly owned subsidiary, Personal Finance Corporation, is
incorporated in Tennessee.
20. In connection with the acts, conduct, and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including, but not limited to, the United States mail, interstate telephone communications, and the
facilities of the national securities exchange.
III. PARTIES
21. Plaintiff City of Palm Beach Gardens Firefighters’ Pension Fund was appointed to
serve as Lead Plaintiff in this action by Order of this Court dated October 22, 2014. Dkt. No. 31. As
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set forth in its certification filed with the Court on September 29, 2014 and incorporated herein,
Plaintiff purchased BancorpSouth common stock at artificially inflated prices during the Class
Period and suffered an economic loss when the relevant truth was disclosed and the stock price
declined. Dkt. No. 19-2.
22. Defendant BancorpSouth, Inc. is a $13 billion financial holding company that is
headquartered in Tupelo, Mississippi, and has substantial operations in Tennessee and other
southeastern states, including Arkansas, Missouri, Mississippi, Alabama, Florida, Louisiana, and
Texas. BancorpSouth, Inc. is the holding company for BancorpSouth Bank. The Company claims
to offer a comprehensive line of financial products and services to individuals and small to mid-size
businesses. In addition to its banking operations, the Company also operates one of the largest bank-
owned insurance brokerages in the country. During the Class Period, BancorpSouth had more than
95 million shares of common stock which was publicly traded on the New York Stock Exchange
(“NYSE”) under the ticker symbol “BXS.” The Company regularly communicated with investors
through periodic filings with the SEC, press releases, conference calls, and investor and analyst
presentations. In addition, the Company maintains a website at www.bancorpsouth.com , which
contains an Investor Relations section where SEC filings, press releases, conference call transcripts,
corporate profiles, descriptions of its business, and other information about the Company are made
available to investors. The Bank is incorporated under the laws of the State of Mississippi and is
subject to the applicable provisions of Mississippi banking laws and laws of the various states in
which it operates. The Bank is also subject to supervision by the Mississippi Department of Banking
and Consumer Finance and to regular examinations by that department. Deposits in the Bank are
insured by the FDIC and, as a result, the Bank is subject to the provisions of the Federal Deposit
Insurance Act and to examination by the FDIC.
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23. Defendant James D. Rollins III is the CEO of BancorpSouth. Rollins was appointed
CEO and joined the Company’s Board on November 27, 2012. Rollins was appointed Chairman of
the Board of the Bank on March 26, 2014, effective as of April 23, 2014. Of the five standing
committees established by the Board, Rollins is a member of the Executive Committee, which acts
on behalf of the Board on all matters concerning the management and conduct of the Bank’s
business and affairs, except those matters enumerated in the charter of the Executive Committee and
those matters reserved to the Board under state law. Prior to joining BancorpSouth, Rollins served
as President of Prosperity Bancshares, Inc. from 2005 to November 26, 2012 and as President and
COO of Prosperity Bancshares, Inc. from April 2006 to November 26, 2012. Rollins holds a
Bachelor of Business Administration from the University of Texas at Austin and is a graduate of the
Southwestern School of Banking at Southern Methodist University. For FY13, Rollins’ annual
compensation exceeded $2 million.
24. Defendant William L. Prater is the CFO, Treasurer, and Senior Executive Vice
President (“EVP”) of BancorpSouth. Prater has served as the Company’s EVP since September 1,
2008, and as its CFO and Treasurer since June 30, 2009. Prior to his positions at BancorpSouth,
Prater served as EVP of Finance at Regions Bank. Prater holds a Bachelor of Science in Accounting
from the University of Alabama-Birmingham. For FY13, Prater’s annual compensation exceeded
$900,000.
25. Defendant James V. Kelley served as President and COO of BancorpSouth from
2000, when the Company merged with First United Bancshares, Inc., through August 2014, when he
resigned. Aside from Rollins, Kelley was the only other BancorpSouth executive on the Company’s
Board. Prior to the merger, Kelley served as Chairman, President, and CEO of First United
Bancshares, Inc. Kelley was Chairman and CEO of First National Bank in El Dorado, Arkansas
from 1985 to 2000. For FY13, Kelley’s annual compensation exceeded $1,000,000.
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26. The Defendants referenced above in ¶¶23-25 are sometimes referred to herein as the
“Individual Defendants.”
IV. CONTROL PERSONS
27. As officers and/or directors and controlling persons of a publicly held company
whose common stock was and is traded on the NYSE and is governed by the provisions of the
federal securities laws, the Individual Defendants each had a duty to promptly disseminate accurate
and truthful information regarding the Company’s financial condition, performance, growth,
operations, financial statements, business, markets, management, earnings, and present and future
business prospects, and to correct any previously issued statements that had become materially
misleading or untrue so that the market price of the Company’s common stock would be based upon
truthful and accurate information. The Individual Defendants’ material misrepresentations and
omissions during the Class Period violated these specific requirements and obligations.
28. The Individual Defendants participated in the drafting, preparation, and/or approval
of the various public statements and other communications complained of herein and were aware of,
or recklessly disregarded, the misstatements contained therein and omissions therefrom, and were
aware of their materially false and misleading nature. Because of their Board membership and/or
senior executive positions with BancorpSouth, each of the Individual Defendants had access to the
adverse undisclosed information about BancorpSouth as particularized herein and knew, or
recklessly disregarded, that these adverse facts rendered the representations made by or about
BancorpSouth (or adopted by the Company) materially false and misleading.
29. The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to, and did, control the content of the various
SEC filings, press releases, and other public statements pertaining to the Company during the Class
Period. Each Individual Defendant was provided with copies of the documents alleged herein to be
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misleading prior to, or shortly after, their issuance and/or had the ability and/or opportunity to
prevent their issuance or cause them to be corrected.
30. Accordingly, each of the Individual Defendants is responsible for the accuracy of the
public reports and releases detailed herein and is therefore primarily liable for the representations
contained therein.
V. FACTUAL ALLEGATIONS
A. Background and Pre-Class Period Cost Cutting
31. Through a series of acquisitions of smaller banks and financial services companies
over the past two decades, BancorpSouth has grown from a small, rural bank in Verona, Mississippi
into one of the largest regional banks in the Southeastern United States. In 1997, BancorpSouth
merged with First Mississippi National Bank, becoming the state’s first state-wide bank. With the
passage of the Federal Interstate Banking Law in 1992, BancorpSouth extended its reach into
Tennessee through the purchase of Volunteer Bank of Jackson. In 1998, BancorpSouth purchased
Highland Bank in Birmingham, extending its presence to the state of Alabama. In 2000,
BancorpSouth merged with First United Bancshares, entering Arkansas, Louisiana, and Texas. In
the mid-2000s, BancorpSouth completed additional acquisitions that expanded its footprint into
Arkansas, Florida, and Missouri. BancorpSouth completed its last bank acquisition in 2007.
32. While BancorpSouth weathered the 2007-2008 financial crisis better than some of its
competitors, it too had its share of problems, including an oversized portfolio of construction,
acquisition, and development loans, which would cause a substantial drag on the Company’s
earnings for years to come. In early 2010, the Company was forced to restate its unaudited FY09
financial results after having failed to take sufficient charges to its loan loss reserves, resulting in
lawsuits and an investigation by the SEC into the Company’s “internal control over financial
reporting and its communications with the independent auditors.”
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33. In May 2012, after years of lackluster financial results, BancorpSouth’s longtime
CEO, Aubrey Patterson, announced his retirement. Following a search by the Company’s Board, in
November 2012, Rollins was named as BancorpSouth’s new CEO and appointed to the Board.
34. Almost immediately, Rollins began efforts to aggressively cut costs at the Company
and increase profitability. Wall Street analysts repeatedly peppered Rollins and BancorpSouth’s
management with questions about the Company’s efficiency initiatives, and how the Company
intended to improve its efficiency ratio. 1
35. For example, in a January 24, 2013 conference call discussing the Company’s 4Q12
earnings, a JPMorgan securities analyst noted that the Company’s efficiency ratio was “over 80% in
the fourth quarter,” and asked whether the Company intended to launch “a more aggressive
efficiency initiative” in 2013. Rollins responded that BancorpSouth “obviously . . . can’t operate at
an 80% efficiency, we’ve got to do a lot better than that,” and that the Company was “focused on
looking for ideas and ways.” As Prater confirmed in the Company’s April 23, 2013 1Q13 earnings
conference call, some of these efforts involved layoffs, or “rationaliz[ing] our headcount.” Other
initiatives involved shrinking the Company’s infrastructure.
36. On May 8, 2013, the Company announced that it had offered an early retirement
program to certain employees as part of its efforts to improve efficiency and operating performance.
The early retirement offer was made to 418 employees, or approximately 10% of the Company’s
workforce. As a result of the program, the Company expected to take a one-time charge ranging
between $8 million and $16 million in 2Q13.
1 A bank’s efficiency ratio is defined as the ratio of a bank’s non-interest expense to revenues. Higher efficiency ratios indicate less efficient banks. While there are many slightly modified definitions of the efficiency ratio, this basic ratio measures a bank’s ability to generate revenues from its non-funding-related expense base.
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37. At a May 14, 2013 Gulf South Bank Conference, Rollins discussed the Company’s
early retirement program with investors. Noting that the Company’s efficiency ratio had worsened
from 67% to 78% in the past few years, Rollins discussed the Company’s offer of early retirement,
and stated that almost 200 people had accepted their offer. Rollins stated that they expected to see
between $0.04 and $0.08 per share cost savings when the plan was fully implemented.
38. By June 2013, 227 people, or over 5% of the Company’s staff, had accepted the early
retirement offer, and Rollins estimated it would reduce expenses by $0.06 per share. By October
2013, Rollins had reduced headcount by 255 people, or 6%, during 2013. Dozens more would be let
go by the end of the year, with 47 more gone by April 2014. Still, Rollins assured investors that
further cost cutting was forthcoming, stating on February 27, 2014 that there were “plenty of
initiatives that we can execute to drive cost out of our system and make ourselves more efficient and
drop more dollars to the bottom line.” This reduction in personnel, as well as other cost-cutting
measures mandated by Rollins, negatively affected the Company’s BSA/AML compliance program.
39. In spite of Rollins’ efforts to reduce costs, however, the Company’s efficiency ratio
remained stubbornly high. By 4Q13, the Company’s efficiency ratio stood at 75% - far higher than
many of its peers, whose efficiency ratios were in the 65% range.
B. BancorpSouth Announces Its First Bank Acquisitions Since 2007, Assuring Investors that the Acquisitions Will Close by the End of the 2Q14
40. Unable to significantly improve the Company’s performance through cost cutting,
Defendants looked to acquisitions as a way to grow the Company’s top line and increase efficiency.
In 2013, six years after its last bank acquisition, BancorpSouth began actively looking for other
banks to acquire. In March 2013, BancorpSouth met with representatives from Ouachita, a
Louisiana state bank with total assets of approximately $652.2 million and 13 locations in Louisiana
and one in Mississippi, during which BancorpSouth expressed a desire to further explore a possible
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merger with Ouachita. In June 2013, BancorpSouth submitted a written expression of interest to
acquire Ouachita. After much discussion and analysis, including an evaluation of the price of
BancorpSouth common stock, the Ouachita Board rejected BancorpSouth’s offer.
41. Over the next few months, as the price of BancorpSouth common stock continued to
climb, BancorpSouth executives re-initiated merger discussions with Ouachita. On January 8, 2014,
the companies entered into a definitive merger agreement, which was approved by the Boards of
both BancorpSouth and Ouachita. BancorpSouth publicly announced the signing of a definitive
merger agreement with Ouachita in a press release issued that same day.
42. As disclosed in the press release, under the terms of the merger agreement, Ouachita
would be merged with and into BancorpSouth. The press release further disclosed that
BancorpSouth would issue a maximum of 3,675,000 shares of BancorpSouth common stock plus
$22.875 million in cash for all outstanding shares of Ouachita capital stock, subject to certain
conditions and potential adjustments. Rollins commented in the press release, “We are very pleased
to announce the first bank transaction for our Company since 2007.”
43. Indeed, the merger with Ouachita was of critical importance to BancorpSouth’s
strategy of growth-by-acquisition, as it allowed the Company to accelerate its ability to grow in
Louisiana, which it viewed as a logical growth area for its community style of banking. Once the
merger closed, the combined company would have $13.6 billion in assets, $9.3 billion in loans, and
$11.3 billion in deposits. The importance of the Ouachita merger was confirmed by Rollins, who
stated in the press release that the “transaction will give us the opportunity to significantly enhance
our market share in both the Monroe-West Monroe and Shreveport-Bossier City markets” while
“provid[ing] an opportunity to enter the Bastrop market,” a market BancorpSouth had not previously
had a presence in. The press release concluded by stating that the merger had been “unanimously
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approved by the Boards of Directors of both companies and is expected to close during the second
quarter of 2014 .”
44. Analysts reacted positively to the merger announcement, commenting that the
transaction was strategically attractive for BancorpSouth, as it was accretive to earnings per share
(“EPS”) with relatively low risk and gave the Company a stronger position in the Shreveport and
Monroe markets, while adding new exposure to the Bastrop area. Analysts noted that the Ouachita
acquisition would also increase BancorpSouth’s Louisiana deposit market share rank from 11th to
7th.
45. Following news of the merger, certain analysts revised their 2014 EPS guidance
upwards to reflect the anticipated positive impact of the acquisition. In an analyst report issued on
January 10, 2014, for example, FIG Partners raised 2014 EPS estimates by $0.02 to $1.35. The
upwards revision was based on the assumption that the Ouachita merger would close towards the end
of 2Q14, which itself was based on Rollins’ assurances that the merger was “expected to close
during the second quarter of 2014.”
46. While merger talks with Ouachita were ongoing, BancorpSouth was also in the midst
of negotiating a potential merger with Central Community. Headquartered in Temple, Texas,
Central Community is the parent company of First State Bank of Central Texas (“First State Bank”),
which had reported total assets of $1.3 billion as of December 31, 2013. First State Bank operates
31 full-service banking offices, 11 of which are in the Austin-Round Rock, Texas area, one of the
fastest-growing markets in Texas and the United States. Like the Ouachita acquisition, the merger
with Central Community was critical to BancorpSouth’s growth-by-acquisition strategy. Of
particular importance was the fact that the merger would allow BancorpSouth to expand its footprint
in the Austin market; upon completion of the merger, Austin would become the largest market
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BancorpSouth would serve. The merger with Central Community would also catapult the
Company’s Texas deposit market share rank from 65th to 29th.
47. On January 22, 2014, BancorpSouth and Central Community entered into a definitive
merger agreement, which BancorpSouth publicly announced via a press release issued the same day.
As disclosed in the press release, under the terms of the definitive merger agreement, BancorpSouth
would issue approximately 7,250,000 shares of BancorpSouth common stock plus $28.5 million in
cash for all outstanding shares of Central Community capital stock, subject to certain conditions and
potential adjustments.
48. In the press release, Rollins commented on the importance of the Central Community
merger, stating that the merger will give the Company “the opportunity to expand our footprint into
the vibrant central Texas market.” Noting the strategic importance of the Austin market in
particular, Rollins stated, “The Austin, Texas MSA consistently ranks at or near the top of almost all
statistical publications regarding economic drivers and activity.” As with the press release
announcing the Ouachita merger, the January 22, 2014 press release told investors that the Central
Community merger was “expected to close during the second quarter of 2014 .”
49. Later that same day, BancorpSouth issued its financial results for the quarter and year
ended December 31, 2013, reporting net income of $27.7 million or $0.29 per diluted share. In a
press release discussing the Company’s financial results, Defendants repeated the same materially
false and misleading statements disclosed in the prior press releases announcing the mergers, stating
that the mergers with Ouachita and Central Community were “expected to close during the second
quarter of 2014.” Rollins concluded the press release by stating, “We are excited about the two bank
deals that have been announced this month and the opportunities they will provide for our Company
going forward. We believe both of these deals will be an integral part of our strategy to grow and to
better leverage our current operating structure.”
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50. On January 23, 2014, the Company held an earnings conference call to discuss its
results for 4Q13. Providing an update on the status of the acquisitions, Rollins disclosed that the
Company had recently filed its Ouachita merger application with bank regulators. He also discussed
the Central Community acquisition, reiterating the importance of the Austin and Central Texas
market due in large part to Austin’s ranking at the top of almost all publications or statistics
regarding economic opportunity and activity. Rollins stated that the Central Community transaction
provided a “solid platform for future growth in this region, both organically and through potential
future consolidation.” The acquisitions were also an important part of BancorpSouth’s overall
strategy and efforts to reduce its core expense base, which the Company was desperate to improve.
Indeed, Rollins specifically commented that the two transactions were critical to allowing
BancorpSouth to further leverage its existing operating structure and back office support.
51. Wall Street analysts reacted positively to the second merger announcement,
commenting that the transaction was strategically attractive for BancorpSouth, as it allowed the
Company to increase its footprint in the Austin market and could serve as a platform for further
organic growth and acquisitions in the coveted Texas markets. Following news of the merger,
analysts again revised their 2014 EPS guidance upwards to reflect the anticipated positive impact of
the acquisition. In an analyst report issued on January 23, 2014, for example, FIG Partners raised
2014 EPS estimates by another $0.02 to $1.37, which was “driven by” the Central Community
acquisition. BB&T Capital Markets similarly increased its 2014 EPS to $1.29 in part due to the
Central Community acquisition, which in its view “should further augment earning power and
operating efficiency.” RBC Capital Markets also increased its 2014 and 2015 EPS estimates to
$1.33 and $1.54, respectively, as a result of “improving growth and efficiency outlook and the
modestly accretive acquisition.”
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C. In Announcing the Mergers, BancorpSouth Claimed to Be in Compliance with Various State and Federal Laws and Regulations, Including BSA/AML Regulations, Which Was Critical in Order for the Mergers to be Approved by Regulators
52. Defendants knew that in order for the mergers to be approved by bank regulators, the
Company would need to be in compliance with applicable state and federal laws and regulations, and
that bank regulators would review the Company’s regulatory compliance as part of the merger
approval process. Compliance was critical, as non-compliance could indefinitely delay, or scuttle
entirely, the Company’s planned acquisitions. Of these regulations, compliance with BSA/AML
regulations were some of the most critical, and had been receiving increasing scrutiny for several
years.
53. In 1970, Congress passed the Currency and Foreign Transactions Reporting Act,
commonly known as the Bank Secrecy Act, which established requirements for recordkeeping and
reporting by private individuals, banks, and other financial institutions. The BSA was designed to
help identify the source, volume, and movement of currency and other monetary instruments
transported or transmitted into or out of the United States or deposited in financial institutions. The
statute requires financial institutions to file currency reports with the U.S. Department of Treasury,
properly identify persons conducting transactions, and maintain a paper trail by keeping appropriate
records of financial transactions. The BSA was subsequently augmented by the enactment of
additional laws, including The Money Laundering Control Act of 1986, which required banks to
develop programs for BSA compliance. In 1996, a SAR was developed to be used by all banking
organizations in the United States. Banking institutions are required to file a SAR whenever they
detect a known or suspected criminal violation of federal law or a suspicious transaction related to
money-laundering activity or a violation of the BSA.
54. Following the September 11, 2001 terrorist attacks, Congress passed the USA
PATRIOT Act – arguably the single most significant AML law enacted since the BSA itself. The
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USA PATRIOT Act requires financial institutions to: (i) establish an AML program; (ii) establish
due diligence policies, procedures, and controls with respect to its private banking accounts and
correspondent banking accounts involving foreign individuals and certain foreign financial
institutions; and (iii) avoid establishing, maintaining, administering, or managing correspondent
accounts in the United States for, or on behalf of, foreign financial institutions that do not have a
physical presence in any country. The USA PATRIOT Act also requires that financial institutions
follow certain minimum standards to verify the identity of customers, both foreign and domestic,
when a customer opens an account.
55. The BSA/AML laws required BancorpSouth to develop and maintain a BSA/AML
compliance program. As part of a BSA/AML compliance program, the federal banking agencies,
including the FDIC, seek to ensure that a bank has policies, procedures, and processes in place to
identify and report suspicious transactions to law enforcement. The BSA/AML compliance program
must be written, approved by the Board, and noted in the Board minutes. A bank’s BSA/AML
compliance program must be commensurate with its BSA/AML risk profile, i.e. , the BSA/AML
compliance program must be designed to appropriately mitigate the BSA/AML risk, based on the
risk assessment.
56. Under the BSA/AML laws, a BSA/AML compliance program must provide for the
following minimum requirements, commonly known as the “4 Pillars” of BSA compliance: (i) a
system of internal controls to ensure ongoing compliance; (ii) independent testing of BSA/AML
compliance; (iii) a designated BSA compliance officer; and (iv) training for appropriate personnel.
57. Internal controls are the bank’s policies, procedures, and processes designed to limit
and control risks and to achieve compliance with the BSA. The level of sophistication of the internal
controls should be commensurate with the size, structure, risks, and complexity of the bank. Internal
controls should, among other things:
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~ Identify banking operations ( i.e. , products, services, customers, entities, and geographic locations) more vulnerable to abuse by money launderers and criminals; provide for periodic updates to the bank’s risk profile; and provide for a BSA/AML compliance program tailored to manage risks.
• Inform the Board, or a committee thereof, and senior management, of compliance initiatives, identified compliance deficiencies, and corrective action taken, and notify directors and senior management of SARs filed.
. Identify a person or persons responsible for BSA/AML compliance.
. Provide for program continuity despite changes in management or employee composition or structure.
• Meet all regulatory recordkeeping and reporting requirements, meet recommendations for BSA/AML compliance, and provide for timely updates in response to changes in regulations.
• Implement risk-based customer due diligence policies, procedures, and processes.
• Identify reportable transactions and accurately file all required reports including SARs, CTRs, and CTR exemptions. (Banks should consider centralizing the review and report-filing functions within the banking organization.)
• Provide for dual controls and the segregation of duties to the extent possible. For example, employees that complete the reporting forms (such as SARs, CTRs, and CTR exemptions) generally should not also be responsible for the decision to file the reports or grant the exemptions.
• Provide sufficient controls and systems for filing CTRs and CTR exemptions.
• Provide sufficient controls and monitoring systems for timely detection and reporting of suspicious activity.
• Provide for adequate supervision of employees who handle currency transactions, complete reports, grant exemptions, monitor for suspicious activity, or engage in any other activity covered by the BSA and its implementing regulations.
~ Incorporate BSA compliance into the job descriptions and performance evaluations of bank personnel, as appropriate.
• Train employees to be aware of their responsibilities under the BSA regulations and internal policy guidelines.
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58. Independent testing (audit) should be conducted by the internal audit department,
outside auditors, consultants, or other qualified independent parties generally every 12 to 18 months,
commensurate with the BSA/AML risk profile of the bank. The audit should be risk based and
evaluate the quality of risk management for all banking operations, departments, and subsidiaries.
Risk-based audit programs will vary depending on the bank’s size, complexity, scope of activities,
risk profile, quality of control functions, geographic diversity, and use of technology. An effective
risk-based auditing program will cover all of the bank’s activities. Auditors should document the
audit scope, procedures performed, transaction testing completed, and findings of the review; and the
documentation and workpapers should be available for examiner review with any deficiencies or
exceptions reported to the Board or a designated committee in a timely manner. At a minimum,
independent testing should include:
An evaluation of the overall adequacy and effectiveness of the BSA/AML compliance program, including policies, procedures, and processes. Typically, this evaluation will include an explicit statement about the BSA/AML compliance program’s overall adequacy and effectiveness and compliance with applicable regulatory requirements. At the very least, the audit should contain sufficient information for the reviewer ( e.g. , an examiner, review auditor, or BSA officer) to reach a conclusion about the overall quality of the BSA/AML compliance program.
. A review of the bank’s risk assessment for reasonableness given the bank’s risk profile (products, services, customers, entities, and geographic locations).
Appropriate risk-based transaction testing to verify the bank’s adherence to the BSA recordkeeping and reporting requirements ( e.g. , Customer Identification Program, SARs, CTRs, and CTR exemptions, and information sharing requests).
. An evaluation of management’s efforts to resolve violations and deficiencies noted in previous audits and regulatory examinations, including progress in addressing outstanding supervisory actions, if applicable.
. A review of staff training for adequacy, accuracy, and completeness.
. A review of the effectiveness of the suspicious activity monitoring systems (manual, automated, or a combination) used for BSA/AML compliance.
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An assessment of the overall process for identifying and reporting suspicious activity, including a review of filed or prepared SARs to determine their accuracy, timeliness, completeness, and effectiveness of the bank’s policy.
An assessment of the integrity and accuracy of Management Information System (“MIS”) used in the BSA/AML compliance program. MIS includes reports used to identify large currency transactions, aggregate daily currency transactions, funds transfer transactions, monetary instrument sales transactions, and analytical and trend reports.
59. The BSA compliance officer is responsible for coordinating and monitoring day-to-
day BSA/AML compliance, as required and detailed in the federal banking agencies’ BSA
compliance program regulations. While the title of the individual responsible for overall BSA/AML
compliance is not important, his or her level of authority and responsibility within the bank is
critical. The BSA compliance officer should be fully knowledgeable of the BSA and all related
regulations. The BSA compliance officer should also understand the bank’s products, services,
customers, entities, and geographic locations, and the potential money laundering and terrorist
financing risks associated with those activities. The appointment of a BSA compliance officer is not
sufficient to meet the regulatory requirement if that person does not have the expertise, authority, or
time to satisfactorily complete the job. The BSA compliance officer is responsible for carrying out
the direction of the Board and ensuring that employees adhere to the bank’s BSA/AML policies,
procedures, and processes.
60. With regard to training, the program should be documented and provided to all
personnel whose duties require knowledge of the BSA. The training should be tailored to the
person’s specific responsibilities and should be ongoing and incorporate current developments and
changes to the BSA and any related regulations. Changes to internal policies, procedures, processes,
and monitoring systems should also be covered during training. The training program should
reinforce the importance that the Board and senior management place on the bank’s compliance with
the BSA and ensure that all employees understand their role in maintaining an effective BSA/AML
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compliance program. Training and testing materials, the dates of training sessions, and attendance
records should be maintained by the bank and be available for examiner review.
61. At set forth below, but unknown to investors, BancorpSouth’s BSA/AML compliance
program woefully failed to meet the requirements of these pillars.
D. Defendants Knew that Since at Least 2012, as the Economy Recovered from the Financial Crisis, the Banking Industry Has Been Focused on BSA/AML Compliance
62. In the aftermath of the financial crisis of 2007-2008, federal regulators have been
keenly focused on identifying and addressing deficiencies in BSA/AML compliance programs,
resulting in a rise in both enforcement actions and civil money penalties. These enforcement actions
have been accompanied by a series of steadily increasing, stern warnings by regulators, both publicly
and during examinations, indicating that BSA/AML and Office of Foreign Assets Control (“OFAC”)
compliance issues are critically important, resulting in a marked increase in scrutiny of banks’
existing BSA/AML and OFAC compliance programs.
63. For example, a January 2012 article in American Banker entitled, “Compliance Needs
to Start with the CEO,” identified BSA/AML compliance as one of five items on their 2012 “to-do-
list.” The article noted that BSA/AML compliance was receiving increased scrutiny from regulators,
and that “[e]very bank CEO should be sure that the essential BSA program ‘pillars’ are in place and
effectively working.”
64. A March 19, 2012 article from management consulting firm Alvarez & Marsal
entitled, “Too Little, Too Late: How to Avoid the Bank Secrecy Act/Anti-Money Laundering Look-
Back,” expressed similar concerns. The article noted that “regulators have substantially increased
their scrutiny of regulatory compliance, especially with an emphasis on the [BSA/AML]
provisions.” The article also discussed how banks could avoid a tremendously expensive Look Back
Review, “[c]onsidered by many banks as punishment for deficiencies in the BSA/AML program.”
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Such Look Back Reviews were characterized as “clearly preventable . . . regardless of the bank’s
size, if practical assessment measures are taken on a continuous and timely basis.”
65. In March 4, 2013, remarks by Thomas J. Curry (“Curry”), Comptroller of the
Currency, before the Institute of International Bankers Annual Washington Conference, Curry
identified operational risk, specifically discussing “the risk that arises from the failure to maintain
effective Bank Secrecy Act and Anti-Money Laundering compliance programs,” as “one of the most
significant regulatory matters before us today.” As Curry stated, BSA/AML regulations were
“passed to provide another tool in the battle against illicit drugs, but today [have] became a major
weapon in the war on terrorism.” Curry noted that there was “nothing new about BSA/AML
compliance,” but that in many recent cases “our examiners concluded that the institution failed to
commit adequate resources to its BSA/AML program. Austerity programs have led to a reduction of
staff and other resources at some banks, and at others, programs have failed to keep pace with the
institution’s growth.” Curry also stated that the “health of a bank’s culture starts at the top, and so
it’s important that senior management demonstrate a commitment to BSA/AML compliance.
Employees need to know BSA compliance is a management propriety and that it will receive the
resources it needs to succeed, including training and first rate information technology.”
66. Just days later, on March 7, 2013, the Committee on Banking, Housing & Urban
Affairs of the U.S. Senate held a hearing entitled, “Patterns of Abuse: Assessing Bank Secrecy Act
Compliance and Enforcement.” During the hearing, Senator Tim Johnson noted a “disturbing”
pattern of violations, wherein major banks’ failures in AML compliance “can protect funds stolen by
corrupt leaders and drug cartels, help sanction violators, and enable terrorist financing.” Senator
Elizabeth Warren questioned whether a serious failure to comply with BSA/AML regulations should
result in a bank being shut down: “What does it take? How many billions of dollars do you have to
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launder for drug lords and how many economic sanctions do you have to violate before someone
will consider shutting down a financial institution like this?”
67. At the hearing, Curry, David S. Cohen (“Cohen”), Under Secretary for Terrorism and
Financial Intelligence, Department of the Treasury, and Jerome H. Powell, Member, Board of
Governors of the Federal Reserve System, all provided testimony regarding the importance of
BSA/AML compliance, and the steps that regulators had taken, and were taking, to improve their
enforcement efforts.
68. Cohen testified that Financial Crimes Enforcement Network was “redoubling its
AML enforcement focus, including by ensuring that it is employing all of the tools at its disposal to
hold accountable those institutions and individuals who allow our financial institutions to be
vulnerable to illicit financial activity.” Curry testified that “I cannot overstate the importance of the
Bank Secrecy Act and other anti-money laundering statutes,” and that “[i]n the wake of the financial
crisis, too many banks inappropriately cut staffing and spending for BSA and anti-money laundering
compliance as austerity measures, and our examiners are now working to ensure that these
institutions add resources they need to maintain solid BSA/AML programs.” Curry also testified
that smaller financial institutions, which would include community banks, were specifically at risk
for being targeted by criminals, as larger banks continued to implement more sophisticated
compliance regimes.
69. A March 2013 “Client Alert” from law firm Paul Hastings entitled “BSA/AML and
OFAC Compliance – Higher Stakes and Greater Consequences for Banks,” reported on the
congressional hearings, as well as the increasing scrutiny of BSA/AML compliance. The Client
Alert noted that while regulators were focused on other priorities during the financial crisis, “[a]bout
a year ago, this trend came to an abrupt halt and, since then, we have seen a number of high profile
supervisory and enforcement actions involving BSA/AML compliance issues.” The Client Alert
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recommended that it was “imperative for banks, thrifts, and other financial institutions to develop
and implement an action plan to address the heightened regulatory scrutiny and program risks
presented with BSA/AML and OFAC compliance. This requires an enterprise-wide review and
assessment of BSA/AML and OFAC risk, regardless of the size and complexity (or lack thereof) of
an institution’s operations.”
70. The 3Q13 edition of Community Banking Connections , a quarterly publication of the
Federal Reserve System, published an article by Bronwen Macro, BSA/AML Risk Coordinator,
Federal Reserve Bank of San Francisco, entitled, “Assessing Inherent BSA/AML Risk at
Community Banks.” The article noted that while “the core BSA/AML program elements have
remained the same,” some banks’ BSA/AML compliance programs became stagnant during the
financial crisis. At the same time, however, “the consequences of noncompliance have become more
severe,” and the “stakes for failing to comply with BSA/AML regulations have never been higher.”
The article specifically warned that inadequate BSA/AML programs could affect a bank’s ability to
grow: “[M]aterial deficiencies that are deemed to make a program less than satisfactory can curtail
an institution’s expansionary activities. Section 327 of the USA PATRIOT Act requires federal
banking agencies to consider an institution’s BSA/AML compliance program when reviewing a
bank’s application.” The article also emphasized steps that smaller, community banks should take in
order to ensure BSA/AML compliance, including adequate and dynamic risk assessment, and
ensuring that the “board of directors and senior management . . . set the right compliance tone from
the top by demonstrating the importance of understanding, monitoring, and controlling BSA risk.”
71. The importance of compliance with BSA/AML regulations was evident not just
through regulators’ stern words and warnings, but also through their actions. In December 2012,
HSBC received $1.9 billion in fines for AML deficiencies after regulators found that the company
had engaged in a substantial number of high-risk transactions in Mexico and violated U.S. sanctions
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in Sudan, Iran, Burma, and Zimbabwe. In 2013 and 2014, M&T Bank’s proposed merger with
Hudson City Bancorp was repeatedly delayed after regulators identified issues with the bank’s
BSA/AML programs. Almost two years after the merger was originally announced, M&T is still
working to fulfill the terms of a written BSA agreement with the Federal Reserve. In January 2014,
JPMorgan Chase agreed to pay $2.05 billion in asset forfeitures and civil money penalties due to
BSA violations connected to the Bernie Madoff Ponzi scheme. TCF Financial and Associated Banc-
Corp were also forced to pay civil money penalties and beef up their AML systems as a result of
BSA violations.
72. Defendants, however, knowingly or recklessly disregarded this deluge of warnings,
and failed to maintain a program that met any of the 4 Pillars of BSA/AML compliance. At the
same time, Defendants falsely represented to investors that BancorpSouth was in “compliance with
applicable laws,” had “properly filed and maintained in all material respects all requisite Currency
Transaction Reports and Suspicious Activity Reports” required by the BSA, and had in place
systems “designed to properly monitor transaction activity (including wire transfers).”
E. The FDIC Initiates a Target Review into BancorpSouth’s BSA/AML Compliance Program; Defendants Fail to Disclose the Target Review or the Fact that BSA/AML Deficiencies Will Delay Mergers
73. Unbeknownst to investors, shortly after the Ouachita and Central Community
acquisitions were announced, on February 3, 2014, the FDIC initiated a Target Review into
BancorpSouth’s BSA/AML compliance program. Because financial institutions are given advance
notice of upcoming examinations, Defendants were aware of the impending FDIC Target Review
before the FDIC began its review. Defendants also knew, or should have known, that the
Company’s BSA/AML compliance program would be under heightened scrutiny by the FDIC due to
the renewed regulatory focus on, and enforcement of, BSA/AML compliance and the proposed
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mergers. As investors would later learn, the FDIC’s Target Review exposed wide-ranging
deficiencies in the Company’s BSA/AML program.
74. A little over a week after the FDIC began its Target Review, BancorpSouth filed a
Registration Statement with the SEC, providing detailed information about the proposed merger
between BancorpSouth and Ouachita to shareholders of both companies. The February 12, 2014
Registration Statement informed investors that the merger required the approval of the FDIC, the
Mississippi Department of Banking and Consumer Finance, and the Louisiana Office of Financial
Institutions. The Company also told investors that it “expect[ed] to obtain approval of the merger
from the FDIC by March 10, 2014” and expected the mandatory 30-day waiting period to expire on
April 9, 2014. BancorpSouth urged Ouachita shareholders to approve the merger agreement.
75. The February 12, 2014 Registration Statement also provided a summary of certain
terms and provisions of the merger agreement with Ouachita, stating that the merger agreement
contained a number of representations by BancorpSouth regarding aspects of its business, financial
condition, structure, and other facts pertinent to the merger, including “compliance with applicable
laws” and “the absence of conflicts with and violations of law.” Annex A to the Registration
Statement set forth in its entirety the Agreement and Plan of Reorganization by and between
BancorpSouth and Ouachita, which was incorporated by reference into the Registration Statement.
As part of the merger agreement, BancorpSouth specifically represented and warranted that it was in
compliance with “all Banking Laws,” including the BSA/AML laws, representing as follows:
(a) BancorpSouth and BancorpSouth Bank have complied in all material respects with and are not in material default or violation under any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Body relating to BancorpSouth or BancorpSouth Bank, including all Banking Laws. BancorpSouth and BancorpSouth Bank have neither had nor suspected any material incidents of fraud or defalcation involving BancorpSouth, BancorpSouth Bank or any of their respective officers, directors or Affiliates during the last two years. Each of BancorpSouth and BancorpSouth Bank has timely and properly filed and maintained in all material respects all requisite Currency Transaction Reports and Suspicious Activity Reports and has systems customarily used by financial institutions of a
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similar size to BancorpSouth Bank that are designed to properly monitor transaction activity (including wire transfers). BancorpSouth Bank is designated as a large bank for purposes of the Community Reinvestment Act and has a Community Reinvestment Act rating of “satisfactory.”
(b) BancorpSouth and its Subsidiaries have filed all reports, registrations and statements, together with any amendments required to be made thereto, that are required to be filed with the Federal Reserve Board, the FDIC, the MDB or any other Governmental Body having supervisory jurisdiction over BancorpSouth and its Subsidiaries, and such reports, registrations and statements as finally amended or corrected, are true and correct in all material respects. Except for normal examinations conducted by bank regulatory agencies in the ordinary course of business, no Governmental Body has initiated any Proceeding or, to BancorpSouth’s knowledge, investigation into the business or operations of BancorpSouth or its Subsidiaries. There is no unresolved violation, criticism or exception by any bank regulatory agency with respect to any report relating to any examinations of BancorpSouth Bank or BancorpSouth.
(c) BancorpSouth has no Knowledge of any fact or circumstance relating to BancorpSouth or any of its Subsidiaries that would materially impede or delay receipt of any required regulatory approval of the Merger or the other transactions contemplated by this Agreement, including the Bank Merger, nor does BancorpSouth have any reason to believe that it will not be able to obtain all requisite regulatory and other approvals or consents which it is required to obtain in order to consummate the Merger and the Bank Merger.
The merger agreement was executed by Rollins on behalf of BancorpSouth.
76. A little more than two weeks later, BancorpSouth filed another Registration
Statement with the SEC on February 28, 2014, providing detailed information about the proposed
merger between BancorpSouth and Central Community to shareholders of both companies. Similar
to the Ouachita Registration Statement, the Central Community Registration Statement informed
investors that it “expect[ed] to obtain approval of the merger from the FDIC on March 22, 2014 and
expect[ed] the waiting period to expire on April 21, 2014.” As with the Ouachita Registration
Statement, Annex A to the Central Community Registration Statement incorporated in its entirety
the terms of the merger agreement, which contained nearly identical representations and warranties
regarding BancorpSouth’s compliance with all applicable banking laws.
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77. On March 10, 2014, BancorpSouth filed with the SEC its Form 424(b)(5) Proxy
Statement/Prospectus for the proposed Ouachita merger, in which it urged Ouachita shareholders to
approve the merger during a special meeting of shareholders on April 8, 2014. Providing an update
on the required regulatory approvals, BancorpSouth stated only that it had filed its application with
the FDIC. Notably, unlike the Form S-4 Proxy/Prospectus filed just a month earlier, BancorpSouth
did not provide a date by which it anticipated the merger would be approved by the FDIC. The
Form 424(b)(5) also failed to disclose that over a month earlier, the FDIC had initiated a Target
Review into BancorpSouth’s BSA/AML compliance policies and procedures and gave no indication
that BancorpSouth’s failure to maintain a proper BSA/AML compliance program would delay the
closing of the mergers.
78. On March 24, 2014, BancorpSouth filed with the SEC its Form 424(b)(5) Proxy
Statement/Prospectus for the proposed Central Community merger, in which it urged Central
Community stockholders to approve the merger during a special meeting of stockholders on April
24, 2014. Notably absent from the Form 424(b)(5) was a date by which BancorpSouth anticipated
FDIC approval of the merger, notwithstanding the Company’s assurances less than a month earlier
that it expected the FDIC to approve the merger by March 22, 2014. The Form 424(b)(5) also failed
to disclose that over a month earlier, the FDIC had initiated a Target Review into BancorpSouth’s
BSA/AML compliance policies and procedures and gave no indication that BancorpSouth’s failure
to maintain a proper BSA/AML compliance program would delay the closing of the mergers.
79. At a special meeting of shareholders on April 8, 2014, Ouachita shareholders
approved the proposed merger with BancorpSouth. On April 21, 2014, BancorpSouth announced its
financial results for the quarter ended March 31, 2014. Highlights for 1Q14 included the
announcement of “the signing of definitive merger agreements with Ouachita Bancshares Corp.,
parent company of Ouachita Independent Bank (collectively referred to as ‘OIB’), headquartered in
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Monroe, Louisiana, and Central Community Corporation, parent company of First State Bank
Central Texas (collectively referred to as ‘First State Bank’), headquartered in Temple, Texas.” The
press release stated that the Ouachita merger was expected to close “shortly after receiving all
required regulatory approvals,” and that the Central Community merger was subject to certain
conditions, including “receipt of all required regulatory approvals,” but failed to disclose the FDIC’s
ongoing Target Review and gave no indication that BancorpSouth’s failure to establish and maintain
a proper BSA/AML compliance program would delay the closing of the mergers.
80. In the press release, Rollins also stated that the Company was “excited about the
opportunities presented by the two bank transactions that we announced during the quarter . . . . OIB
is a bank we have a tremendous amount of respect for in a market we already serve. We expect to
gain synergies from the footprint overlap in Monroe and Shreveport while adding a very skilled
lending team that will help us grow. First State Bank presents an opportunity to expand our footprint
into Central Texas, which is a high growth market we have not previously served. We believe both
of these transactions will allow us to better leverage our existing back office and support structure.”
81. During BancorpSouth’s 1Q14 earnings conference call on April 22, 2014, Rollins
provided another update on the status of the mergers, stating that the Company “anticipat[ed] being
able to close these two transaction shortly after receiving all necessary regulatory approvals.”
During the question-and-answer portion of the conference call, Stephens Inc. analyst Matt Olney
asked whether the Company was “optimistic that we will see these deals close some time mid to late
2Q.” In response, Rollins cautioned that he could not say “whether we will be able to make that
schedule or not,” but reaffirmed his prior statements that “we are intending to close as soon as we
can as soon as we get all of the approvals.” Despite the direct questioning about the status of the
mergers, Rollins continued to conceal from investors the FDIC’s ongoing Target Review and the fact
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that the Company’s BSA/AML compliance program failed to meet the minimum standards required
by federal laws, which would cause the closing of the mergers to be delayed.
82. Following Rollins’ comments during the April 22, 2014 conference call, analysts and
investors continued to believe that the mergers would close sometime during 2Q14 or early 3Q14, as
previously represented by Defendants. For example, a Stephens Inc. analyst report issued on April
22, 2014, stated that “[w]e continue to believe that BXS will produce 9%+ revenue growth and
20%+ EPS growth in 2014 and 2015 due to positive operating leverage within legacy BXS
combined with its two pending bank acquisitions,” which it forecasted as closing in “early 3Q14.”
An April 28, 2014 Evercore analyst report modeled “a mid-2Q close for Ouachita and a end of 2Q
close for Central,” while an April 29, 2014 FIG Partners analyst report also maintained its current
model, which had “both deals closing at/near the end of 2Q14.”
83. On May 13, 2014, BancorpSouth presented at the Gulf South Bank Conference. In
response to a question on the anticipated timing of the closing of the mergers, Rollins provided
another “update” on the status of the mergers, disclosing for the first time that he was not sure if the
mergers would close within the second quarter as previously promised:
We said that we felt we were going to be able to close those second quarter. And the second quarter is halfway through and I’m not sure we’re going to make that timeline. We have – the regulatory approvals are not there yet. Both shareholder meetings have happened so everything is done and complete other than regulatory approval. And we’re working with the regulators every day to answer whatever questions they may have. And our expectation is that we will get approval. We just don’t know when.
84. While Rollins’ statements during the Gulf South Bank Conference hinted at issues
with the regulatory approval process, he continued to conceal from investors the ongoing FDIC
Target Review and the fact that the Company’s BSA/AML compliance policies were utterly
inadequate and in violation of federal law and that the mergers would be delayed indefinitely as a
result.
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85. On May 20, 2014, BancorpSouth presented at the SunTrust Robinson Humphrey
Unconference in New York, New York. During the conference, BancorpSouth continued to conceal
the FDIC’s ongoing Target Review from investors, as well as the extent of the Company’s
BSA/AML compliance deficiencies, instead blaming the delay in the closing of the Ouachita and
Central Community mergers on “CRA/fair lending protests,” which the Company told attendees of
the conference could delay the “closing[s] by several months.” BancorpSouth’s materially false and
misleading remarks at the conference were later disseminated to the market and investors via a May
20, 2014 SunTrust Robinson Humphrey analyst report.
86. On June 26, 2014, BancorpSouth announced in a press release that it was undertaking
a “comprehensive management reorganization of the Company’s senior management responsibilities
and reporting structure.” As disclosed in the press release, “[t]he reorganization impacts the
Company’s entire senior management organization” as well as its “operations and technology, credit
administration and loan operations, accounting, compliance , audit, enterprise risk management and
administration functions.” As part of the management reorganization, the Company also announced
that Chris Bagley (“Bagley”) had been named President and COO, succeeding Kelley. In the press
release, the Company touted Bagley’s experience in the banking industry, and more specifically, his
experience in “BSA, fair lending and compliance ,” which “will all support BancorpSouth’s long
term performance.”
87. The timing of the “comprehensive management reorganization” was suspicious, as it
coincided directly with the FDIC’s ongoing, yet concealed, BSA/AML Target Review and occurred
less than a month before the Company’s revelation of the FDIC investigation. Furthermore, the
press release failed to disclose the FDIC’s Target Review and the Company’s woefully inadequate
BSA/AML compliance program, which would ultimately cost millions of dollars to remediate and
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put the mergers on an indefinite hold, despite deliberately discussing Bagley’s experience with both
BSA and compliance.
F. BancorpSouth Stuns Investors by Revealing that the Bank’s BSA/AML and Fair Lending Policies Are Under Review by Federal Regulators and Disclosing that the Ouachita and Central Community Mergers Will Be Substantially Delayed
88. On July 21, 2014, BancorpSouth issued a press release announcing its financial
results for the quarter ended June 30, 2014. In the press release, Defendants also disclosed for the
first time that “federal bank regulators have identified concerns during the course of routine
supervisory activities regarding the Company’s procedures, systems and processes related to certain
of its compliance programs, including its Bank Secrecy Act and anti-money-laundering programs.”
The Company disclosed that as a result of the regulators’ findings, “additional time will be required
to obtain regulatory approvals and to satisfy closing conditions necessary to complete” the mergers
with Ouachita and Central Community, and that both companies had agreed to extend their
respective merger agreements to June 30, 2015. In addition, the press release revealed that the CFPB
“currently is conducting a review of the Company’s fair lending practices.” 2
89. During the earnings conference call on July 22, 2014, Rollins provided additional
details on the regulatory investigations, stating that “federal regulators have identified some concerns
with our procedures, systems and processes related to certain of our compliance programs, including
2 In 2010, the CFPB was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Among other things, the CFPB was created to enforce Dodd-Frank and centralize oversight of the various consumer financial protection laws, such as the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. The CFPB’s stated mission is to ensure compliance with federal consumer financial laws through effective enforcement of those laws. Accordingly, Dodd-Frank authorizes the CFPB to bring enforcement actions against acts or practices in connection with consumer financial products that are unfair, deceptive, or abusive. The CFPB’s authority is broad, as it has jurisdiction over any transaction with a consumer for a consumer financial product or service.
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Bank Secrecy Act and Anti-Money Laundering. Additionally, the Consumer Financial Protection
Bureau is currently conducting a review of our fair lending practices.”
90. Later in the conference call, Rollins admitted that the “requirements to comply with
the rules that are out there are not that hard. We just need to make sure we’ve got all the processes
and procedures in place.” Hovde Group analyst Kevin Fitzsimmons commented that it should have
been no surprise to Defendants that regulators would look closely at the Company’s BSA/AML
compliance, especially given the renewed regulatory focus on the issue, the fact that BancorpSouth
was over $10 billion in size, and because of the two proposed acquisitions, asking the question on
every investor’s mind: “[H]ow does this happen? Because it’s not a surprise that this area is
going to get more scrutiny .” In response, Rollins continued to mislead investors, claiming that the
issues “came out of left field.”
91. However, in addition to the evidence described above, the Company’s reported legal
expenses for 2Q14 revealed that the FDIC investigation did not come “out of left field,” and that the
Company had already been working to remedy some of the (previously concealed) issues identified
by the FDIC during 2Q14, which ended on June 30, 2014. Indeed, from 1Q14 to 2Q14,
BancorpSouth’s legal expenses increased $1.1 million. When asked about the expected cost of
becoming BSA/AML compliant during the July 22, 2014 conference call, Rollins admitted that some
of the cost of remedying the Company’s BSA/AML compliance deficiencies was already reflected in
“last quarter’s legal numbers.” Thus, contrary to Rollins’ statements that the FDIC investigation and
identified deficiencies was “very recent news,” the Company began taking steps to remedy its
BSA/AML compliance deficiencies over a month before disclosing the FDIC investigation to
investors.
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92. When asked to provide more detail on the CFPB investigation, Rollins stated only
that this was their “first experience with the CFPB” and, as a result, they had no knowledge “of
whether this is normal or not normal or customary or not customary.”
93. Defendants’ revelations shocked investors, as this was the first time Defendants had
disclosed the existence of the FDIC’s Target Review and the Company’s BSA/AML compliance
problems. As a result of this news, shares of BancorpSouth tumbled $1.90, or over 8%, on
extremely heavy volume, to close at $21.51 on July 22, 2014. The price of BancorpSouth stock
continued to fall the next day, dropping another 1.72% to close at $21.14 on July 23, 2014.
94. Wall Street analysts were also stunned by Defendants’ disclosures and reacted
negatively to the news of the regulatory investigations and the delay of the Ouachita and Central
Community mergers. For example, in a report dated July 22, 2014, RBC Capital Markets
commented that “the solid 2Q results were mostly overshadowed by the delayed acquisitions and
regulatory issues identified recently (fair lending and AML/BSL).” Also on July 22, 2014, BB&T
Capital Markets lowered its estimates to “reflect higher operating expenses and the mergers closing
at YE14,” stating that “the lack of clarity around the regulatory situation provides us pause at this
point.” SunTrust Robinson Humphrey also reduced its price target, reporting that “[t]he estimate
revision reflects an end of 2Q15 closing for the two bank acquisitions as well as higher estimated
legal and personnel costs to resolve the compliance issues.” Jeffries commented that “[t]he
disclosure that two pending acquisitions will be delayed due to BSA/AML compliance issues will be
received negatively.”
95. The negative analyst commentary continued the next day. In a report issued on July
23, 2014, Stephens Inc. reported that the Company’s disclosure of the regulatory investigations was
a “major setback because the timeline for resolution is unknown and could continue well into 2015.”
Also on July 23, 2014, Drexel Hamilton lowered its 2014 and 2015 EPS estimates to $1.24 and
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$1.46 from $1.36 and $1.57, respectively, noting that “[o]ur revised estimates reflect the delay in the
closing of the two acquisitions the company is currently pursuing (Central Community in Texas and
Ouachita in Louisiana) due to regulator concerns related to BSA/AML issues.” While commenting
on the positive 2Q14 results, J.P. Morgan also reported that “[t]aking the headlines, however, was
the announcement by the company that regulators have identified concerns regarding systems and
processes related to certain compliance programs including BSA/AML in addition to the CFPB
conducting a review of the company’s fair lending practices.”
G. BancorpSouth Withdraws Its Applications for Regulatory Approval of the Ouachita and Central Community Mergers and Enters into a Consent Order with the FDIC Evidencing Massive Failures in BSA/AML Compliance
96. On August 6, 2014, BancorpSouth filed its Form 10-Q with the SEC for the quarter
ended June 30, 2014. In the Form 10-Q, the Company expanded on the previously disclosed FDIC
investigation. Specifically, BancorpSouth disclosed that the “FDIC will take the required
administrative action to effect corrective action for the statutory and regulatory violations that exist
with an insured depository’s BSA program.” The Company also disclosed, for the first time, that
“the FDIC requested . . . that the Bank address the subject matter of the BSA deficiencies by entering
into a proposed consent order,” which the Company anticipated would be filed after the filing of the
report on Form 10-Q. The Company described the actions the FDIC would likely require it to take
via the Consent Order, including “to review and revise its BSA risk assessment, BSA compliance
program, and Suspicious Activity Report filing procedures and processes, and engage necessary
third parties in respect of the foregoing.”
97. Expanding on the CFPB investigation, the Company stated that the CFPB has “issued
two inter-related Civil Investigative Demands to the Bank seeking documents and information
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regarding the Bank’s fair lending program.” The Company disclosed that it was “cooperating with
the CFPB with respect to this ongoing matter.” 3
98. With respect to the pending mergers, BancorpSouth disclosed that on July 22, 2014,
the Federal Reserve Bank of St. Louis informed the Company that it would not consider regulatory
approval of the Ouachita and Central Community mergers “until such time as the necessary actions
to remediate and resolve the aforementioned BSA matter identified by the FDIC were
accomplished.” The Company further disclosed that, because of its ongoing regulatory problems, it
had withdrawn its applications for regulatory approval of the mergers.
99. On September 4, 2014, BancorpSouth disclosed that the Bank had entered into a
Consent Order with the FDIC and the Mississippi Department of Banking and Consumer Finance,
which was approved by the Company’s Board. 4 The Consent Order required the Company to
establish a subcommittee of the Board with responsibility for ensuring that BancorpSouth complied
with the provisions of the Consent Order, while also noting that the entire Board was also
responsible for compliance. It also required wholesale revisions and modifications to the
Company’s BSA/AML compliance program, including requiring: (i) an assessment of staffing in the
Company’s BSA Department; (ii) the appointment of a qualified BSA Officer; (iii) the development
3 In BancorpSouth’s November 3, 2014 Form 10-Q, the Company disclosed that the U.S. Department of Justice (“DOJ”) had begun a related investigation of the Company’s fair lending practices, and asked for production of the same documents and information sought by the CFPB.
4 While the Company neither admitted nor denied that they had violated BSA/AML laws or regulations, the FDIC’s Target Review expressly found that “the requirements for issuance of an order under 12 U.S.C. §1818(b),” which gives the FDIC “the authority to address by consent orders ‘unsafe or unsound’ practices or violations of law by financial institutions,” had been met. See In re JPMorgan Chase Mortg. Modification Litig ., 880 F. Supp. 2d 220, 229 n. 10 (D. Mass. 2012). Similarly, the Mississippi Department of Banking and Consumer Finance (the “DBCF”) found that the requirements for issuance of an order under Mississippi Code §81-1-125 had been met, which requires a determination by the DBCF Commissioner “that a solvent bank is conducting its business in an unsafe or unsound manner, or in any fashion which threatens the financial integrity or sound operation of the bank.” Furthermore, the Consent Order disclosed that the FDIC had indeed found “violations of law and regulation” as a result of its February 3, 2014 Target Review.
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of a written BSA Remediation Plan; (iv) the institution of adequate internal controls; (v) independent
testing for compliance with the BSA; (vi) a training program on all aspects of the Company’s BSA
Remediation Plan and compliance with the BSA; (vii) a Look Back Review going back to June 2013
to determine which suspicious activities were properly identified and reported; (viii) a due diligence
program to provide a risk-focused assessment of the Company’s customer base; (ix) a revised
BSA/AML Risk Assessment Program; (x) a revised written program for monitoring and reporting
suspicious activity, which fully meets all applicable requirements of Section 353 of the FDIC Rules,
12 C.F.R. §353; and (xi) the elimination of all violations of law and regulations noted in the FDIC’s
February 3, 2014 Target Review.
100. As the Consent Order and other disclosures and evidence make clear, BancorpSouth
had woefully failed to comply with all of the 4 Pillars of the BSA/AML compliance regulations.
101. First, BancorpSouth did not have in place a system of internal controls designed to
limit and control risks and to achieve compliance with the BSA. As the Company would later admit,
a risk assessment conducted with the assistance of outside auditors indicated that the Company’s
internal controls with respect to customer due diligence and transaction monitoring needed
“significant enhancements” in order to “more completely and accurately identify suspicious
activity.” The Consent Order also required the Company to strengthen its internal controls,
including the implementation of procedures for conducting risk-based assessments of the Bank’s
customer base to differentiate between customers who engage in routine banking activities and those
who engage in high-risk banking activities.
102. The Consent Order also required that the Company conduct an “[a]ssessment of the
Bank’s personnel needs to ensure that an adequate number of qualified staff have been retained for
the Bank’s BSA Department,” and appoint a qualified BSA officer. As a result, and demonstrating
the scale of the Company’s prior deficiencies, the Company was forced to increase its BSA/AML
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monitoring staff over ten-fold, from just three people specifically devoted to BSA compliance, to
“35 full-time positions . . . including a designation of a new BSA officer.”
103. Furthermore, the Consent Order sought to remediate BancorpSouth’s historical failure
to identify and report suspicious activity, requiring the “[d]evelopment and implementation of a plan
to analyze certain past deposit account and transaction activity to determine whether any suspicious
activity was properly identified and reported.” Such plans, known as “Look Back Reviews,” are
required when regulators determine that a bank has exhibited fundamental infirmities in its
BSA/AML compliance program, and are viewed by many as punitive measures designed in part to
punish an institution for serious compliance failures.
104. Second, BancorpSouth failed to maintain a training program adequate to achieve
compliance. The Consent Order required BancorpSouth to “[establish] a training program for
management and staff regarding awareness of, and compliance with, the BSA,” which had been
woefully inadequate. For example, BancorpSouth’s ongoing BSA/AML training for its front-line
staff, including customer service representatives, previously consisted of an online multiple-choice
test taken once a year, which employees would take over and over again until they received a
passing score, often simply guessing at the answers until they selected the correct one. Branch
personnel were not allocated any specific time to review for, or take, these tests, but rather were
expected to complete them at the same time as they were assisting customers and attending to their
other duties. Moreover, management did not emphasize the importance of knowledge and
compliance regarding BSA/AML regulations, instead only seeking to ensure that staff had taken the
required tests.
105. Third, BancorpSouth failed to conduct adequate independent testing or auditing to
evaluate the adequacy or effectiveness of its BSA/AML program. The Consent Order required
BancorpSouth to either engage a qualified outside party to independently test for the Bank’s
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compliance with the BSA and its rules and regulations, or use in-house Bank personnel independent
of the BSA function to conduct such testing. Additionally, the Consent Order required the Bank to
perform independent testing on an annual basis during the term of the Consent Order.
106. Finally, BancorpSouth failed to designate a qualified BSA Compliance Officer. The
Consent Order required BancorpSouth to provide a qualified BSA Compliance Officer with
sufficient executive authority to monitor and ensure compliance with the BSA and its implementing
rules and regulations. Additionally, pursuant to the terms of the Consent Order, the adequacy of the
BSA Officer was to be reviewed by the Regional Director of the FDIC and the Commissioner based
on subsequent examinations and/or visitations of the Bank.
107. Remediating the BSA/AML compliance programs has resulted in a significant
expenditure of time and money. The Company disclosed on October 21, 2014, that remediation had
cost the Company $3.1 million during FY14 alone, and that ongoing annual increased costs would
be approximately $3 million. At the time of the filing of this Complaint, regulators have still not
signed-off on the Company’s remediation efforts. In addition, the CFPB and DOJ investigation into
the Company’s fair lending practices continues.
VI. DEFENDANTS MADE MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS WHICH FAILED TO DISCLOSE THEIR NON-COMPLIANCE WITH BSA/AML REGULATIONS, OR THE DELAYS TO THE PENDING MERGERS
108. Throughout the Class Period, Defendants made materially false and misleading
statements and omissions which assured investors that the Company was in compliance with
BSA/AML requirements, while failing to disclose the Company’s non-compliance, the FDIC
investigation into the Company’s practices, and the effect that their non-compliance would have on
the Ouachita and Central Community mergers.
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A. January 8, 2014 Press Release and January 9, 2014 Form 8-K
109. On January 8, 2014, BancorpSouth issued a press release entitled, “BancorpSouth,
Inc. to Merge with Ouachita Bancshares Corp., Monroe, Louisana.” Rollins was quoted in the press
release, Prater was listed as the contact, and both Rollins and Prater had ultimate authority to
approve the press release.
110. In the January 8, 2014 press release, Defendants “announced today the signing of a
definitive merger agreement with Ouachita Bancshares Corp. . . . whereby Ouachita Bancshares
Corp. will be merged with and into BancorpSouth, Inc.” Rollins commented that it was “the first
bank transaction for our Company since 2007.” The press release also stated that the merger “is
expected to close during the second quarter of 2014,” that it was subject to “customary regulatory
approvals,” and that “[o]perational integration is anticipated to begin during the second quarter of
2014.”
111. On January 9, 2014, BancorpSouth filed a Form 8-K with the SEC attaching the
January 8 press release.
112. The January 8, 2014 press release and January 9, 2014 Form 8-K were materially
false and misleading because Defendants did not genuinely believe, and had no reasonable basis to
believe, that the Ouachita acquisition would receive regulatory approval and close in 2Q14, or that
operational integration would begin in 2Q14. See ¶¶156-168. Furthermore, Defendants’ statements
were materially misleading because they omitted to disclose that the Company’s BSA/AML
violations seriously undermined any expectation that the Ouachita acquisition would receive
regulatory approval and close in 2Q14, and that operational integration would begin in 2Q14. Id.
B. January 22, 2014 Press Release and Form 8-K, and January 23, 2014 Conference Call
113. On January 22, 2014, BancorpSouth issued a press release entitled, “BancorpSouth,
Inc. to Acquire Largest Independent Bank Headquartered in Austin, TX.” Rollins was quoted in the
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press release, Prater was listed as the contact, and both Rollins and Prater had ultimate authority to
approve the press release.
114. In the January 22, 2014 press release, Defendants “announced today the signing of a
definitive merger agreement with Central Community Corporation, headquartered in Temple, Texas,
whereby Central Community Corporation will be merged with and into BancorpSouth, Inc.” The
press release stated that the merger “is expected to close during the second quarter of 2014. The
transaction is subject to . . . customary regulatory approvals. Operational integration is anticipated to
begin during the third quarter of 2014.”
115. Also on January 22, 2014, BancorpSouth filed a Form 8-K with the SEC attaching the
press release.
116. On January 23, 2014, the Company held a conference call with investment analysts to
discuss the Company’s 4Q12 financial results. Rollins and Prater participated in the conference call,
as well as numerous other BancorpSouth executives. 5 Analysts from 13 separate investment
companies all participated in the call. During the call, Rollins discussed the importance of the
Ouachita transaction to the “growth prospects” for BancorpSouth, and that the Company had
“recently filed [its] merger application with [] bank regulators.” Rollins also stated that the Central
Community merger would provide “a solid platform for future growth in this region, both
organically and through potential future consolidation opportunities. We expect operational
integration of this transaction to follow OIB.”
117. The January 22, 2014 press release and Form 8-K, and the January 23, 2014
conference call, were materially false and misleading because Defendants did not genuinely believe,
5 Other BancorpSouth executives participating in the conference call included Will Fisackerly (“Fisackerly”) (Senior Vice President and Director of Corporate Finance), James Threadgill (“Threadgill”) (EVP and Head of Financial Services Division), Gordon Lewis (“Lewis”) (EVP and Vice Chairman), Ron Hodges (EVP and Chief Lending Officer), and James Hodges (“Hodges”) (EVP and Chief Lending Officer).
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and had no reasonable basis to believe, that the Central Community acquisition would receive
regulatory approval and close in 2Q14, or that operational integration would begin in 3Q14. See
¶¶156-168. Furthermore, Defendants’ statements were materially misleading because they omitted
to disclose that the Company’s BSA/AML violations seriously undermined any expectation that the
Central Community acquisition would receive regulatory approval and close in 2Q14, and that
operational integration would begin in 3Q14. Id.
C. February 12, 2014 Registration Statement
118. On February 12, 2014, BancorpSouth filed a Registration Statement with the SEC
describing the proposed merger between BancorpSouth and Ouachita. The Registration Statement
was signed by Rollins and Prater, among others. In the Registration Statement, Defendants stated
that “[s]ubject to stockholder and regulatory approval, BancorpSouth and Ouachita Bancshares hope
to complete the merger during the second quarter of 2014.”
119. The Registration Statement informed shareholders that the Ouachita merger would
not close until BancorpSouth received the necessary approval from regulators, and until after the
expiration of a 30-day period following FDIC approval for the DOJ “to submit any adverse
comments relating to competitive factors resulting from the merger.” Nevertheless, Defendants
stated that “[o]n January 21, 2014, BancorpSouth Bank filed applications with the FDIC, the
Mississippi Department of Banking and Consumer Finance and the Louisiana Office of Financial
Institutions to obtain approval of the subsidiary bank merger,” and that “BancorpSouth expects to
obtain approval of the merger from the FDIC by March 10, 2014 and expects the waiting period to
expire on April 9, 2014.”
120. Annex A to the Registration Statement set forth in its entirety the Agreement and Plan
of Reorganization by and between BancorpSouth and Ouachita dated as of January 8, 2014. In
Article IV, Section 4.7 of the Agreement, BancorpSouth made certain representations and
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warranties, stating that the Company was in compliance with all applicable laws, statutes, and
regulations, and that they had no knowledge of any reason why regulatory approval of the
acquisition would be delayed:
(a) BancorpSouth and BancorpSouth Bank have complied in all material respects with and are not in material default or violation under any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Body relating to BancorpSouth or BancorpSouth Bank, including all Banking Laws . BancorpSouth and BancorpSouth Bank have neither had nor suspected any material incidents of fraud or defalcation involving BancorpSouth, BancorpSouth Bank or any of their respective officers, directors or Affiliates during the last two years. Each of BancorpSouth and BancorpSouth Bank has timely and properly filed and maintained in all material respects all requisite Currency Transaction Reports and Suspicious Activity Reports and has systems customarily used by financial institutions of a similar size to BancorpSouth Bank that are designed to properly monitor transaction activity (including wire transfers). BancorpSouth Bank is designated as a large bank for purposes of the Community Reinvestment Act and has a Community Reinvestment Act rating of “satisfactory.”
* * *
(c) BancorpSouth has no Knowledge of any fact or circumstance relating to BancorpSouth or any of its Subsidiaries that would materially impede or delay receipt of any required regulatory approval of the Merger or the other transactions contemplated by this Agreement, including the Bank Merger, nor does BancorpSouth have any reason to believe that it will not be able to obtain all requisite regulatory and other approvals or consents which it is required to obtain in order to consummate the Merger and the Bank Merger.
121. The February 12, 2014 Registration Statement was materially false and misleading
because Defendants did not genuinely believe, and had no reasonable basis to believe, that the
Ouachita acquisition would receive FDIC approval by March 10, 2014, or that the merger would be
completed during 2Q14. See ¶¶156-168. Furthermore, Defendants’ statements were materially
misleading because they omitted to disclose that the Company’s BSA/AML violations seriously
undermined any expectation that the Ouachita acquisition would receive FDIC approval by March
10, 2014. Id.
122. Annex A to the Feburary 12, 2014 Registration Statement was materially false and
misleading because BancorpSouth had not complied with applicable laws and regulations regarding
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BSA/AML compliance, and any systems in place to purportedly monitor transaction activity were
grossly inadequate. See ¶¶100-104. Further, Defendants did have knowledge of facts or
circumstances, specifically the Company’s BSA/AML non-compliance, that would materially
impede or delay receipt of required regulatory approval of the merger. See ¶¶156-168.
D. February 25, 2014 Form 10-K
123. On February 25, 2014, BancorpSouth filed its Form 10-K for FY13 with the SEC.
The Form 10-K was signed by Rollins and Prater, among others. In the Form 10-K, Defendants
reiterated that both the Ouachita and Central Community transactions were “expected to close during
the second quarter of 2014.” In addition, Defendants acknowledged that management, including
Prater and Rollins, were responsible for “preparing its institution’s financial statements, and
establishing and maintaining an internal control structure and procedures for financial reporting and
compliance with designated laws and regulations concerning safety and soundness.”
124. The February 25, 2014 Form 10-K was materially false and misleading because
Defendants did not genuinely believe, and had no reasonable basis to believe, that the Ouachita and
Central Community acquisitions would close during 2Q14. See ¶¶156-168. Furthermore,
Defendants’ statements were materially misleading because they omitted to disclose that the
Company’s BSA/AML violations seriously undermined any expectation that the Ouachita and
Central Community acquisitions would close in 2Q14. Id.
E. February 28, 2014 Registration Statement
125. On February 28, 2014, BancorpSouth filed another Registration Statement with the
SEC, describing the proposed merger between BancorpSouth and Central Community. The
Registration Statement was signed by Rollins and Prater, among others. In the Registration
Statement, Defendants stated that “[s]ubject to stockholder and regulatory approval, BancorpSouth
and Central Community hope to complete the merger during the second quarter of 2014.”
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126. The Registration Statement again informed shareholders that the Central Community
merger would not close until BancorpSouth received the necessary approval from regulators, and
until after the expiration of a 30-day period following FDIC approval for the DOJ “to submit any
adverse comments relating to competitive factors resulting from the merger.” Nevertheless,
Defendants stated that “BancorpSouth expects to obtain approval of the merger from the FDIC by
March 22, 2014 and expects the waiting period to expire on April 21, 2014.”
127. Annex A to the Registration Statement set forth in its entirety the Agreement and Plan
of Reorganization by and between BancorpSouth and Central Community dated as of January 22,
2014. In Article IV, Section 4.7 of the Agreement, BancorpSouth made certain representations and
warranties, stating that the Company was in compliance with all applicable laws, statutes, and
regulations, and that they had no knowledge of any reason why regulatory approval of the
acquisition would be delayed:
(a) BancorpSouth and BancorpSouth Bank have complied in all material respects with and are not in material default or violation under any applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Body relating to BancorpSouth or BancorpSouth Bank, including all Banking Laws . BancorpSouth and BancorpSouth Bank have neither had nor suspected any material incidents of fraud or defalcation involving BancorpSouth, BancorpSouth Bank or any of their respective officers, directors or Affiliates during the last two years. Each of BancorpSouth and BancorpSouth Bank has timely and properly filed and maintained in all material respects all requisite Currency Transaction Reports and Suspicious Activity Reports and has systems customarily used by financial institutions of a similar size to BancorpSouth Bank that are designed to properly monitor transaction activity (including wire transfers). BancorpSouth Bank is designated as a large bank for purposes of the Community Reinvestment Act and has a Community Reinvestment Act rating of “satisfactory.”
* * *
(c) BancorpSouth has no Knowledge of any fact or circumstance relating to BancorpSouth or any of its Subsidiaries that would materially impede or delay receipt of any required regulatory approval of the Merger or the other transactions contemplated by this Agreement, including the Bank Merger, nor does BancorpSouth have any reason to believe that it will not be able to obtain all requisite regulatory and other approvals or consents which it is required to obtain in order to consummate the Merger and the Bank Merger.
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128. The February 28, 2014 Registration Statement was materially false and misleading
because Defendants did not genuinely believe, and had no reasonable basis to believe, that the
Central Community acquisition would receive FDIC approval by March 22, 2014. See ¶¶156-168.
Furthermore, Defendants’ statements were materially misleading because they omitted to disclose
that the Company’s BSA/AML violations seriously undermined any expectation that the Central
Community acquisition would receive FDIC approval by March 22, 2014. Id.
129. Annex A to the Feburary 28, 2014 Registration Statement was materially false and
misleading because BancorpSouth had not complied with applicable laws and regulations regarding
BSA/AML compliance, and any systems in place to purportedly monitor transaction activity were
grossly inadequate. See ¶¶100-104. Further, Defendants did have knowledge of facts or
circumstances, specifically the Company’s BSA/AML non-compliance, that would materially
impede or delay receipt of required regulatory approval of the merger. See ¶¶156-168.
F. March 10, 2014 Ouachita Proxy Statement
130. On March 10, 2014, BancorpSouth filed a Proxy Statement/Prospectus (the “Ouachita
Proxy Statement”) regarding BancorpSouth’s proposed merger with Ouachita. The Ouachita Proxy
Statement was solicited on behalf of BancorpSouth’s Board, including Rollins. Both Rollins and
Prater had ultimate authority to approve the Ouachita Proxy Statement.
131. The Ouachita Proxy Statement incorporated by reference several of the statements
and disclosures set forth above, including the February 25, 2014 FY12 Form 10-K, and the January
9, 2014 and January 22, 2014 Forms 8-K.
132. The Ouachita Proxy Statement included a discussion of BancorpSouth’s acquisition
of Central Community, stating that the Central Community transaction, as well as the Ouachita
transaction, were expected to be completed “during the second quarter of 2014.”
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133. The Ouachita Proxy Statement indicated that Defendants had no reason to believe that
approval of the transactions would be delayed, stating that while they could not be certain “if or
when we will obtain them . . . [w]e expect to obtain all necessary regulatory approvals.” Defendants
also stated that they “do not currently expect” regulators to impose any “material conditions or
changes” prior to approval of the acquisition.
134. These statements were materially false and misleading because Defendants did not
genuinely believe, and had no reasonable basis to believe, that the Ouachita acquisition would be
completed during 2Q14. See ¶¶156-168. Furthermore, Defendants’ statements were materially
misleading because they omitted to disclose that the Company’s BSA/AML violations seriously
undermined any expectation that the Ouachita acquisition would be completed during 2Q14, or that
the acquisitions would be approved without any “material conditions or changes.” Id.
135. The Ouachita Proxy Statement also included a copy of the merger agreement between
the Company and Ouachita, as previously filed with the February 12, 2014 Registration Statement,
wherein BancorpSouth stated that the Company was in compliance with all applicable laws, statutes,
and regulations, and that they had no knowledge of any reason why regulatory approval of the
acquisition would be delayed, as set forth in detail in ¶¶118-122, above.
136. These statements were materially false and misleading because BancorpSouth had not
complied with applicable laws and regulations regarding BSA/AML compliance, and any systems in
place to purportedly monitor transaction activity were grossly inadequate. See ¶¶100-107. Further,
Defendants did have knowledge of facts or circumstances, specifically the Company’s BSA/AML
non-compliance, that would materially impede or delay receipt of required regulatory approval of the
merger. See ¶¶156-168.
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G. March 24, 2014 Central Community Proxy Statement
137. On March 24, 2014, BancorpSouth filed a Proxy Statement/Prospectus (the “Central
Community Proxy Statement”) regarding BancorpSouth’s proposed merger with Central
Community. The Central Community Proxy Statement was solicited on behalf of BancorpSouth’s
Board, including Rollins. Both Rollins and Prater had ultimate authority to approve the Central
Community Proxy Statement.
138. The Central Community Proxy Statement incorporated by reference several of the
statements and disclosures set forth above, including the February 25, 2014 FY13 Form 10-K, and
the January 9, 2014 and January 22, 2014 Forms 8-K.
139. The Central Community Proxy Statement included a discussion of BancorpSouth’s
acquisition of Ouachita, stating that the Ouachita transaction, as well as the Central Community
transaction, were expected to be completed “during the second quarter of 2014.”
140. The Central Community Proxy Statement indicated that Defendants had no reason to
believe that approval of the transactions would delayed, stating that while they could not be certain
“if or when we will obtain them . . . we believe that we will obtain the remaining regulatory
approvals in a timely matter.” Defendants also stated that they “do not currently expect” regulators
to impose any “material conditions or changes” prior to approval of the acquisition.
141. These statements were materially false and misleading because Defendants did not
genuinely believe, and had no reasonable basis to believe, that the Central Community acquisition
would be completed during 2Q14. See ¶¶156-168. Furthermore, Defendants’ statements were
materially misleading because they omitted to disclose that the Company’s BSA/AML violations
seriously undermined any expectation that the Central Community acquisition would be completed
during 2Q14, or that the acquisitions would be approved without any “material conditions or
changes.” Id.
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142. The Central Community Proxy Statement also included a copy of the merger
agreement between the Company and Central Community, as previously filed with the February 28,
2014 Registration Statement, wherein BancorpSouth stated that the Company was in compliance
with all applicable laws, statutes, and regulations, and that they had no knowledge of any reason why
regulatory approval of the acquisition would be delayed, as set forth in detail in ¶¶125-129 above.
143. These statements were materially false and misleading because BancorpSouth had not
complied with applicable laws and regulations regarding BSA/AML compliance, and any systems in
place to purportedly monitor transaction activity were grossly inadequate. See ¶¶100-104. Further,
Defendants did have knowledge of facts or circumstances, specifically the Company’s BSA/AML
non-compliance, that would materially impede or delay receipt of required regulatory approval of the
merger. Id.
H. April 21, 2014 Press Release and April 22, 2014 Form 8-K
144. On April 21, 2014, BancorpSouth issued a press release announcing the Company’s
financial results for 1Q14 ended March 31, 2014. Rollins was quoted in the press release and Prater
was listed as the contact person. Both Rollins and Prater had ultimate authority to approve the press
release.
145. In the April 21, 2014 press release, Defendants again discussed the Ouachita and
Central Community transactions. With respect to the Ouachita transaction, Defendants stated that
“[t]he merger has been unanimously approved by the Board of Directors of each company and was
approved by OIB shareholders on April 8, 2014. The transaction is expected to close shortly after
receiving all required regulatory approvals.” With respect to the Central Community transaction,
Defendants stated that “[t]he merger has been unanimously approved by the Board of Directors of
each company. The transaction is subject to certain conditions, including the approval by Central
Community Corporation’s shareholders and receipt of all required regulatory approvals.”
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146. These statements were materially false and misleading because they failed to disclose
that the Company was in the midst of a Target Review by the FDIC regarding its BSA/AML
compliance, and that, as a result, the Company’s ability to obtain regulatory approval within the
time-frame required by the merger agreements and expected by investors and the market had been
seriously undermined.
147. The April 21, 2014 press release also incorporated by reference the Registration
Statements and Proxy Statement/Prospectuses filed in connection with the Ouachita and Central
Community acquisitions, stating that investors were “encouraged” to read them as they contained
“important information about the merger[s].”
148. On April 22, 2014, BancorpSouth filed a Form 8-K with the SEC attaching the press
release.
149. The Registration Statements and Proxy Statements, which were incorporated in the
April 21, 2014 press release and Form 8-K, remained materially false and misleading for the reasons
set forth in ¶¶118-122, 125-143, above.
I. April 22, 2014 Conference Call
150. Also on April 22, 2014, the Company held a conference call with investment analysts
to discuss the Company’s 1Q14 financial results. Rollins and Prater participated in the conference
call, as well as numerous other BancorpSouth executives. 6 Analysts from seven separate investment
companies also participated in the call.
151. During the April 22, 2014 conference call, Rollins discussed the Ouachita and Central
Community transactions, stating that “[o]ur operational integration team continues to work diligently
preparing for the closing of these transactions and integration of these two banks into our
6 Other BancorpSouth executives participating in the conference call included Fisackerly, Threadgill, Lewis, and Hodges.
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organization. The OIB shareholders met and approved their transaction on April 8; the Central
Community shareholder meeting is scheduled on April 24. We anticipate being able to close these
two transaction shortly after receiving all necessary regulatory approvals.”
152. When asked specifically by an analyst whether the transactions would close in 2Q14,
as Defendants had previously informed the market, Rollins did not disclose any concerns that the
FDIC had regarding approval of the acquisitions, merely saying that there was “no normal” schedule
for regulatory review, that BancorpSouth did not know if they could close the transactions on
schedule or not, and that they were “intending to close as soon as we can as soon as we get all of the
approvals.”
153. Rollins’ statements during the April 22, 2014 conference call were materially false
and misleading because they failed to disclose that the Company was in the midst of a Target
Review by the FDIC regarding its BSA/AML compliance, and that as a result, the Company’s ability
to obtain regulatory approval within the time-frame required by the merger agreements and expected
by investors and the market had been seriously undermined. Indeed, following the April 22, 2014
conference call, analysts and investors continued to believe that the mergers would close during
2Q14 or early 3Q14, as Rollins’ statements during the conference call gave no indication that the
mergers could be delayed indefinitely. For example, a Stephens Inc. analyst report issued on April
22, 2014 stated that “[w]e continue to believe that BXS will produce 9%+ revenue growth and 20%+
EPS growth in 2014 and 2015 due to positive operating leverage within legacy BXS combined with
its two pending bank acquisitions,” which it forecasted as closing in “early 3Q14.” An April 28,
2014 Evercore analyst report modeled “a mid-2Q close for Ouachita and at end of 2Q close for
Central,” while an April 29, 2014 FIG Partners analyst report also maintained its current model,
which had “both deals closing at/near the end of 2Q14.”
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J. May 13, 2014 Conference Call
154. On May 13, 2014, BancorpSouth presented at the Gulf South Bank Conference. In
response to a question on the anticipated timing of the closing of the mergers, Rollins provided
another “update” on the status of the mergers, disclosing that he was not sure if the mergers would
close within the second quarter as previously promised:
We said that we felt we were going to be able to close those second quarter. And the second quarter is halfway through and I’m not sure we’re going to make that timeline. We have – the regulatory approvals are not there yet. Both shareholder meetings have happened so everything is done and complete other than regulatory approval. And we’re working with the regulators every day to answer whatever questions they may have. And our expectation is that we will get approval. We just don’t know when.
155. Rollins’ May 13, 2014 statements during the Golf South Bank Conference were
materially false and misleading because they failed to disclose that the Company was in the midst of
a Target Review by the FDIC regarding its BSA/AML compliance, and that as a result, the
Company’s ability to obtain regulatory approval could be indefinitely delayed. Indeed, Rollins
continued to conceal from investors the ongoing FDIC Target Review and the fact that the
Company’s BSA/AML compliance program was utterly inadequate and in violation of federal law.
VII. ADDITIONAL SCIENTER ALLEGATIONS
156. The materially false and misleading statements and omissions identified above were
made with scienter – either with reckless disregard to, or actual knowledge of, their false and
misleading nature. Defendants’ scienter is evidenced, in part, by the following facts and
circumstances which existed both prior to, and during, the Class Period.
157. Defendants knew, or recklessly disregarded, that since at least 2012, federal
regulators have been more focused on BSA/AML compliance and enforcement. ¶¶62-72. Indeed,
prior to the beginning of the Class Period, numerous industry publications, bank regulators, and even
United States senators, warned of the importance of implementing a proper and comprehensive
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BSA/AML compliance program, and of the potential consequences of failing to comply with
BSA/AML regulations. Id. Defendants have admitted that their responsibilities as senior
management, and in the case of Rollins and Kelley, members of the Board, includes “regular
reviews” of regulatory compliance. Yet Defendants disregarded at least two years of current, factual
information regarding the importance of BSA/AML compliance, regulators’ scrutiny of BSA/AML
compliance (particularly in the context of acquisitions), and the programs that needed to be in place
in order to ensure compliance. Id.
158. Failing to heed the foregoing warnings, Defendants – with Rollins at the helm –
embarked on an aggressive cost-cutting campaign in an effort to improve the Company’s bloated
efficiency ratio and increase profitability. In 2013, and the beginning of 2014, the Company reduced
its overall headcount by approximately 10%. The Company’s BSA/AML department remained
woefully understaffed, consisting of just three people, even though regulators had warned of the
effects that austerity programs could have on BSA/AML compliance. As a result, the Company
lacked the personnel and resources necessary to properly and fully implement a BSA/AML
compliance program designed to meet BSA/AML regulations. Furthermore, the capital resources
dedicated to training and testing BSA/AML compliance were inadequate. E.g. , ¶104.
159. Defendants, as senior executives and members of BancorpSouth’s Board, were
specifically responsible for ensuring BSA/AML compliance, and therefore can be presumed to have
knowledge of the Company’s deficiencies. In March 17, 2014 remarks before the Association of
Certified Anti-Money Laundering Specialists, Curry stated that “when we look at the issues
underlying BSA infractions, they can almost always be traced back to decisions and actions of the
institution’s Board and senior management. . . . [Such deficiencies] require the attention of senior
management, starting with the Chief Executive’s office.” Furthermore, federal regulations
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specifically required that BancorpSouth’s BSA/AML compliance program be in writing, approved
by the Board (of which Rollins and Kelley were both members), and noted in the Board minutes.
160. Defendants were also required to, but did not, ensure that regulatory compliance was
a priority for BancorpSouth employees. As Curry stated, the “health of a bank’s culture starts at the
top, and so it’s important that senior management demonstrate a commitment to BSA/AML
compliance. Employees need to know BSA compliance is a management priority.” Rollins,
however, did not view or communicate regulatory compliance as a priority, and likened the
Company’s regulators to “little kids . . . not playing well in the sandbox with each other.” Rollins
also disparaged regulators’ enforcement priorities as “flavor of the week” enforcement,
notwithstanding the fact that BSA/AML compliance in particular is essential to law enforcement’s
ability to investigate drug trafficking and organized crime, and further counter-terrorism efforts.
Defendants also failed to demonstrate a commitment to BSA/AML training and testing. Instead,
they required that front-line employees review, and be tested on, BSA/AML compliance while also
assisting customers, and provided testing which employees simply repeated again and again until
they received a passing score.
161. Defendants also knew, or recklessly disregarded, that the Company’s BSA/AML
compliance program needed to be especially robust in light of the numerous known risks associated
with their business. Issues facing BancorpSouth that are identified as posing moderate and high risk,
as defined in the Federal Financial Institutions Examination Council’s 2014 Bank Secrecy Act/Anti-
Money Laundering Manual, include: (i) a “[c]ustomer base increasing due to branching, merger, or
acquisition”; (ii) offering “a wide array of e-banking products and services”; (iii) being located in
HIDTA areas; 7 and (iv) personnel turnover.
7 The High Intensity Drug Trafficking Area program (“HIDTA)” is a drug-prohibition enforcement program run by the United States Office of National Drug Control Policy, which provides assistance to federal, state, local, and tribal law enforcement agencies operating in areas
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162. Defendants knew, or recklessly disregarded, that the acquisitions of Ouachita and
Central Community would require regulatory approval, including approval by the FDIC. Defendants
also knew, or recklessly disregarded, that as part of the regulatory approval process, the FDIC would
conduct an examination of the Company’s BSA/AML compliance program and that the Company’s
BSA/AML program, policies, and procedures would be subject to heightened scrutiny due to the
renewed regulatory focus on, and enforcement of, BSA/AML compliance.
163. In fact, on February 3, 2014, the FDIC initiated a Target Review into BancorpSouth’s
BSA/AML compliance program. Defendants were aware of the impending FDIC Target Review
before the FDA began its on-site review, but failed to disclose the FDIC’s Target Review to
investors. By virtue of Defendants’ positions in senior management with responsibility for
overseeing the Company’s BSA/AML compliance program, and in part as a result of the aggressive
cost-cutting measures Rollins implemented in 2013 and 2014, Defendants knew, or recklessly
disregarded, that the Company’s BSA/AML compliance program was deficient, and that the FDIC’s
BSA/AML examination would reveal widespread problems which would cause the mergers to be
delayed.
164. On February 12, 2014 and February 28, 2014, BancorpSouth filed its Registration
Statements with the SEC for the Ouachita and Central Community mergers, respectively.
BancorpSouth told investors that it “expect[ed] to obtain approval of the [Ouachita] merger from the
FDIC by March 10, 2014,” and “expect[ed] to obtain approval of the [Central Community] merger
from the FDIC on March 22, 2014.” Yet just a month later, when BancorpSouth filed its Forms
424(b)(5) Proxy Statements/Prospectuses for the mergers, the Company suddenly grew silent on
when it anticipated the mergers would be approved by the FDIC, while failing to disclose that over a
determined to be critical drug-trafficking regions. Approximately 97 BancorpSouth branches are located in HIDTA areas. Ten of Ouachita’s twelve branches are located in HIDTA areas.
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month earlier, the FDIC had initiated a Target Review into BancorpSouth’s BSA/AML compliance
policies and procedures.
165. On June 26, 2014, the Company announced that it was undertaking a “comprehensive
management reorganization of the Company’s senior management responsibilities and reporting
structure.” As part of the management reorganization, the Company also announced that Bagley had
been named President and COO, publicly touting his experience in “BSA, fair lending and
compliance.” The timing of the “comprehensive management reorganization” was suspicious and
further supports an inference of scienter, as it coincided directly with the FDIC’s ongoing, yet
concealed, BSA/AML Target Review and occurred less than a month before the Company’s
revelation of the FDIC’s investigation.
166. From 1Q14 to 2Q14, the Company’s legal expenses increased $1.1 million. During
the Company’s July 22, 2014 conference call, Rollins admitted that some of the cost of remedying
the Company’s BSA/AML compliance deficiencies was already reflected in “last quarter’s legal
numbers.” In other words, the Company had begun implementing its BSA/AML compliance
remediation efforts in 2Q14, which ended on June 30, 2014 – over a month before Defendants
revealed the FDIC’s investigation and merger delay to the public. This timing further supports an
inference of scienter and belies Rollins’ assertion that the FDIC investigation came “out of left
field.”
167. Additionally, the Company’s BSA/AML compliance deficiencies were not minor or
insignificant such that Defendants might be without knowledge of them. Rather, every pillar of the
Company’s BSA/AML compliance program was fundamentally infirm, as evidenced in part by the
lack of personnel and resources dedicated to BSA/AML compliance, and the FDIC’s requirement
that BancorpSouth conduct a retrospective Look Back Review to examine whether the Company
failed to appropriately identify and submit SARs.
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168. Finally, according to Curry, there is “nothing new about BSA/AML compliance,” and
Rollins has admitted that the “requirements to comply with the rules that are out there are not that
hard.” The Company’s deficiencies, therefore, were not the result of mere technical failures, or the
inability to comply with a complex or confusing regulatory regime. Rather, they were the result of a
fundamental unwillingness to commit the resources necessary to ensure compliance.
VIII. LOSS CAUSATION
169. Prior to and during the Class Period, Defendants engaged in a scheme to defraud and
issued materially false and misleading statements and omissions concerning the Company’s true
operational condition. Specifically, as alleged herein, Defendants intentionally, or with deliberate
recklessness, concealed their failure to comply with relevant BSA/AML laws and regulations, and
failed to disclose the fact that these violations would likely impede the Company’s ability to timely
complete the announced acquisitions.
170. The conduct alleged herein and the materially false and misleading statements and
omissions made during the Class Period caused BancorpSouth common stock to trade at inflated
prices as high as $26.24 per share during the Class Period – and operated as a fraud or deceit on
investors in the Company’s common stock.
171. Later, when the relevant truth was disclosed regarding Defendants’ conduct and
BSA/AML violations, BancorpSouth’s stock price suffered a significant decline, as the artificial
inflation came out of the stock price.
172. Specifically, after the market closed on July 21, 2014, Defendants disclosed for the
first time that “federal bank regulators have identified concerns during the course of routine
supervisory activities regarding the Company’s procedures, systems and processes related to certain
of its compliance programs, including its Bank Secrecy Act and anti-money-laundering programs.”
As a result, the Company noted that “additional time will be required to obtain regulatory approvals
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and to satisfy closing conditions necessary to complete” the mergers with Ouachita and Central
Community and that both companies had agreed to extend their respective merger agreements until
June 30, 2015. BancorpSouth also revealed that the CFPB “currently is conducting a review of the
Company’s fair lending practices.”
173. This revelation caused the artificial inflation to come out of the stock, and
BancorpSouth’s stock price dropped substantially, declining nearly 10% in two days on massive
volume of over 5 million shares.
174. The timing and magnitude of the decline in BancorpSouth common stock negates any
inference that the losses suffered by Plaintiff and other Class members were caused by changed
market conditions, macroeconomic factors, or Company-specific facts unrelated to Defendants’
fraudulent conduct. During the same period in which BancorpSouth’s stock price fell nearly 10% as
a result of Defendants’ fraud being revealed, the stock of BancorpSouth’s selected industry peer
group fell less than 1%. In fact, the decline occurred despite BancorpSouth achieving positive
financial growth in 2Q14 compared to 2Q13. Investors understood this as well, as evidenced by
analyst commentary that the positive earnings were overshadowed by the news of delayed mergers,
and regulatory investigations. See ¶¶94-95. 8
Date % Change BXS Closing Peer Group
% Change Price Closing Price
7/21/14 $23.41 -0.51% $436.18 -0.52% 7/22/14 $21.51 -8.12% $435.23 -0.22% 7/23/14 $21.14 -1.72% $435.37 0.03%
175. Like other members of the Class of purchasers of BancorpSouth common stock who
purchased at artificially inflated prices during the Class Period, Plaintiff suffered an economic loss,
i.e. , damages, when BancorpSouth’s stock price declined following the July 21, 2014 disclosures.
8 To avoid confusion, the BancorpSouth closing prices set forth in this chart have not been adjusted to account for subsequent dividends, splits, or the effects of the Company’s buyback program.
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IX. APPLICABILITY OF THE PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET
176. A Class-wide presumption of reliance is appropriate in this action under the United
States Supreme Court’s holdings in Affiliated Ute Citizens v. United States , 406 U.S. 128 (1972)
(with respect to material omissions), and Basic Inc. v. Levinson , 485 U.S. 224, 226 (U.S. 1988) (with
respect to materially false and misleading statements).
177. Plaintiff will rely upon the presumption of reliance established by the fraud-on-the-
market doctrine in that, among other things:
(a) Defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
(b) the omissions and misrepresentations were material;
(c) the Company’s stock traded in an efficient market;
(d) the misrepresentations alleged would tend to induce a reasonable investor to
misjudge the value of the Company’s stock; and
(e) Plaintiff and other members of the Class purchased BancorpSouth common
stock between the time Defendants misrepresented or failed to disclose material facts and the time
the true facts were disclosed, without knowledge of the misrepresented or omitted facts.
178. At all relevant times, the market for BancorpSouth common stock was efficient for
the following reasons, among others:
(a) as a regulated issuer, BancorpSouth filed periodic public reports with the
SEC; and
(b) BancorpSouth regularly communicated with public investors via established
market communication mechanisms, including through regular disseminations of press releases on
the major newswire services and through other wide-ranging public disclosures, such as
communications with the financial press, securities analysts, and other similar reporting services.
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X. CLASS ACTION ALLEGATIONS
179. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the
Federal Rules of Civil Procedure on behalf of a Class consisting of all those who purchased or
otherwise acquired the publicly traded common stock of BancorpSouth between January 8, 2014 and
July 21, 2014, inclusive, and who were damaged thereby. Excluded from the Class are Defendants,
the officers and directors of the Company, at all relevant times, members of their immediate families
and their legal representatives, heirs, successors, or assigns, and any entity in which Defendants have
or had a controlling interest.
180. Because BancorpSouth has millions of shares of stock outstanding and because the
Company’s shares were actively traded on the NYSE, members of the Class are so numerous that
joinder of all members is impracticable. According to BancorpSouth’s SEC filings, as of the quarter
ended June 30, 2014, BancorpSouth had approximately 96 million shares outstanding. While the
exact number of Class members can only be determined by appropriate discovery, Plaintiff believes
that Class members number at least in the thousands and that they are geographically dispersed.
181. Plaintiff’s claims are typical of the claims of the members of the Class because
Plaintiff and all of the Class members sustained damages arising out of Defendants’ wrongful
conduct complained of herein.
182. Plaintiff will fairly and adequately protect the interests of the Class members and has
retained counsel experienced and competent in class actions and securities litigation. Plaintiff has no
interests that are contrary to, or in conflict with, the members of the Class it seeks to represent.
183. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual members of the Class may be relatively small, the expense and
burden of individual litigation make it impossible for the members of the Class to individually
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redress the wrongs done to them. There will be no difficulty in the management of this action as a
class action.
184. Questions of law and fact common to the members of the Class predominate over any
questions that may affect only individual members in that Defendants have acted on grounds
generally applicable to the entire Class. Among the questions of law and fact common to the Class
are:
(a) whether Defendants violated the federal securities laws as alleged herein;
(b) whether Defendants’ publicly disseminated press releases and statements
during the Class Period omitted and/or misrepresented material facts;
(c) whether Defendants failed to convey material facts or to correct material facts
previously disseminated;
(d) whether Defendants acted willfully, with knowledge or severe recklessness, in
omitting and/or misrepresenting material facts;
(e) whether the market prices of BancorpSouth’s securities during the Class
Period were artificially inflated due to the material nondisclosures and/or misrepresentations
complained of herein; and
(f) whether the members of the Class have sustained damages as a result of the
decline in value of BancorpSouth’s stock when the truth was revealed and the artificial inflation
came out, and, if so, what is the appropriate measure of damages.
185. Plaintiff makes the allegations herein based upon the investigation of Plaintiff’s
counsel, which included a review of regulatory filings made by BancorpSouth with the SEC, as well
as other regulatory filings and reports, securities analysts’ reports and advisories about the Company,
press releases and other public statements issued by the Company, and media reports about the
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Company. Plaintiff believes that substantial additional evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for discovery.
COUNT I
FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED
THEREUNDER AGAINST BANCORPSOUTH, ROLLINS, AND PRATER
186. Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein.
187. By engaging in the acts, practices, and omissions previously alleged, each of the
Defendants named in this Count violated Section 10(b) of the Exchange Act and Rule 10b-5 by:
(a) employing devices, schemes, and artifices to defraud;
(b) making untrue statements of material facts or omitting to state material facts
necessary in order to make the statements made, in light of the circumstances under which they were
made, not misleading; or
(c) engaging in acts, practices, and a course of business that operated as a fraud or
deceit upon Plaintiff and others similarly situated in connection with their purchases of
BancorpSouth common stock during the Class Period.
188. During the Class Period, Defendants made, disseminated, and/or approved each of the
statements specified in paragraphs 108-155, supra.
189. Each of the statements specified in paragraphs 108-155, supra, were materially false
or misleading at the time they were made, in that they contained misrepresentations of fact or failed
to disclose material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
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190. The statutory safe harbor conditionally provided by 15 U.S.C. §78u-5 for
certain forward-looking statements does not apply to any of the statements alleged herein to be
materially false or misleading because:
(a) the statements were not forward-looking or identified as such when made;
(b) the statements were not accompanied by meaningful cautionary language that
sufficiently identified the specific, important factors that could cause actual results to differ
materially from those in the statement;
(c) the statements were included in a financial statement prepared in accordance
with generally accepted accounting principles; or
(d) the statements were made by Defendants with actual knowledge that the
statement was false or misleading.
191. Defendants made, disseminated, or approved the statements specified in paragraphs
108-155, supra, while knowing or recklessly disregarding that the statements were false or
misleading, or omitted to disclose facts necessary to prevent the statements from misleading
investors in light of the circumstances under which they were made.
192. Plaintiff purchased shares of BancorpSouth common stock in reliance upon the truth
and accuracy of the statements specified in paragraphs 108-155, supra, and the other information
that was publicly reported by Defendants about BancorpSouth and its operations, and without
knowledge of the facts, transactions, circumstances, and conditions fraudulently misrepresented to or
concealed from the market during the Class Period, as specified above.
193. Plaintiff and the Class have suffered damages in that they:
(a) paid artificially inflated prices for publicly issued shares of BancorpSouth
securities;
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(b) purchased their BancorpSouth securities on an open, developed, and efficient
public market; and
(c) incurred economic losses when the price of those securities declined as the
direct and proximate result of the public dissemination of information that was inconsistent with
Defendants’ prior public statements or otherwise alerted the market to the facts, transactions,
circumstances, and conditions concealed by Defendants’ misrepresentations and omissions, or the
economic consequences thereof.
194. Plaintiff and the Class would not have purchased BancorpSouth common
stock at the prices they paid, or at all, if they had been aware that the market prices had been
artificially inflated by the false and misleading statements and omissions specified above.
COUNT II
FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS
195. Plaintiff repeats and realleges each and every allegation contained above as if fully set
forth herein.
196. Defendants BancorpSouth, Rollins and Prater and/or persons under their control
violated Section 10(b) of the Exchange Act and Rule 10b-5 by their acts and omissions described
above, causing economic injury to Plaintiff and the other members of the Class.
197. By virtue of their positions as controlling persons, Defendants are each liable
pursuant to Section 20(a) of the Exchange Act for the acts and omissions of their co-Defendants in
violation of the Exchange Act.
198. Each of the Defendants acted as a controlling person of some or all of their co-
Defendants, as set forth in the chart below, because they each had the capacity to control, or did
actually exert control, over the actions of their co-Defendants in violation of the securities laws:
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Defendant controlled Defendants by virtue of Rollins BancorpSouth his position of power and control and his
Kelley responsibilities as BancorpSouth’s CEO and Prater Chairman; his power to hire and fire and his
supervisory authority over Kelley and Prater and other members of BancorpSouth’s senior, regional, and branch managers and employees; his day-to-day involvement in, and control over, BancorpSouth’s operations, including those relating to reporting requirements and regulatory compliance; his ability to control the contents of BancorpSouth’s press releases, SEC filings, and other public statements during the Class Period.
Rollins BancorpSouth their ability to control the contents of BancorpSouth’s Kelley press releases, SEC filings, and other public Prater statements during the Class Period; their supervisory
authority over other members of BancorpSouth’s senior, regional, and branch management and employees; their day-to-day involvement in and control over BancorpSouth’s operations.
BancorpSouth Rollins its power to hire, fire, supervise, and otherwise control Kelley the actions of its employees, including the Individual Prater Defendants, and the salaries, bonuses, incentive
compensation, and other employment consideration and arrangements provided to the Individual Defendants.
199. Each of the Individual Defendants had direct and supervisory involvement in the day-
to-day operations of the Company and, therefore, is presumed to have had the power to, and did,
control or influence the business practices or conditions giving rise to the securities violations
alleged herein, and the contents of the statements which misled investors about those conditions and
practices, as alleged above. By virtue of their high-level positions, ownership of, and contractual
rights with, BancorpSouth, participation in or awareness of the Company’s operations, and intimate
knowledge of the matters discussed in the public statements filed by the Company with the SEC and
disseminated to the investing public, Defendants had the power to influence and control, and did
influence and control, directly or indirectly, the decision-making of the Company, including the
contents and dissemination of the false and misleading statements alleged above.
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200. The Individual Defendants, because of their positions with the Company, possessed
the power and authority to control the contents of BancorpSouth’s reports, press releases, quarterly
conference calls, and other presentations to securities analysts, money and portfolio managers, and
institutional investors, i.e. , the market. Each of the Individual Defendants was provided with copies
of the Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on its own behalf and on behalf of the Class, prays for relief and
judgment, as follows:
A. Declaring that this action is a proper class action and certifying Plaintiff as Class
representative pursuant to Rule 23 of the Federal Rules of Civil Procedure and Plaintiff’s counsel as
Class Counsel for the proposed Class;
B. Awarding compensatory damages in favor of Plaintiff and the other Class members
against all Defendants, jointly and severally, for all damages sustained as a result of Defendants’
wrongdoing, in an amount to be proven at trial, including interest thereon;
C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
action, including attorneys’ fees and expert fees; and
D. Such other and further relief as the Court deems appropriate.
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JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: January 9, 2015 ROBBINS GELLER RUDMAN & DOWD LLP
CHRISTOPHER M. WOOD, #032977 j
-
CHRISTOPHER M. WOOD
414 Union Street, Suite 900 Nashville, TN 37219 Telephone: 615/244-2203 615/252-3798 (fax)
ROBBINS GELLER RUDMAN & DOWD LLP
JACK REISE MAUREEN E. MUELLER 120 East Palmetto Park Road, Suite 500 Boca Raton, FL 33432 Telephone: 561/750-3000 561/750-3364 (fax)
Lead Counsel for Plaintiff
BARRETT JOHNSTON MARTIN & GARRISON, LLC
JERRY E. MARTIN, #20193 TIMOTHY L. MILES, #21605 Bank of America Plaza 414 Union Street, Suite 900 Nashville, TN 37219 Telephone: 615/244-2202 615/252-3798 (fax) jmartin@barrettjohnston.com tmiles@barrettjohnston.com
Liaison Counsel
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SUGARMAN & SUSSKIND ROBERT SUGARMAN 100 Miracle Mile, Suite 300 Coral Gables, FL 33134 Telephone: 305/529-2801 305/447-8115 (fax)
Additional Counsel for Plaintiff
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CERTIFICATE OF SERVICE
I hereby certify that on January 9, 2015, I authorized the electronic filing of the foregoing
with the Clerk of the Court using the CM/ECF system which will send notification of such filing to
the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I
caused to be mailed the foregoing document or paper via the United States Postal Service to the non-
CM/ECF participants indicated on the attached Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on January 9, 2015.
s/ Christopher M. Wood CHRISTOPHER M. WOOD
ROBBINS GELLER RUDMAN & DOWD LLP
414 Union Street, Suite 900 Nashville, TN 37219 Telephone: 615/244-2203 615/252-3798 (fax)
E-mail:cwood@rgrdlaw.com
994810_1 Case 3:14-cv-01564 Document 39 Filed 01/09/15 Page 72 of 74 PageID #: 398
CM/ECF - DC V5.1.1 (September 2013)- https://ecf.tnmd.uscourts.gov/cgi-bin/MailList.pl?388336770762497-L_1_0-1
Information for a Case 3:14-cv-01564
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
• R. Bruce Allensworth bruce.allensworth@klgates.com
• Paul Kent Bramlett pknashlaw@aol.com
• Robert P. Bramlett robert@bramlettlawoffices.com
• Patrick V. Dahlstrom pdahlstrom@pomlaw.com
• Jeremy A. Lieberman jalieberman@pomlaw.com ,lpvega@pomlaw.com
• Jeffrey B. Maletta jeffrey.maletta@klgates.com
• Jerry E. Martin jmartin@barrettjohnston.com,hdeshmukh@rgrdlaw.com ,tellis@barrettjohnston.com ,zplympton@barrettjohnston.com
• Francis P. McConville fmcconville@pomlaw.com
• Timothy L. Miles tmiles@barrettjohnston.com ,tellis@barrettjohnston.com
• Jack Reise jreise@rgrdlaw.com
Case 3:14-cv-01564 Document 39 Filed 01/09/15 Page 73 of 74 PageID #: 399
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Thomas Anderton Wiseman , III
tom@wisemanashworth.com
• Christopher M. Wood cwood@rgrdlaw.com,ptiffith@rgrdlaw.com,e_file_sd@rgrdlaw.com
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The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may
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• (No manual recipients)
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