Federal regulators are billing a Regions Bank subsidiary more than $200 million following a lengthy, multi-state investigation into fraud charges that could force the country’s 12th largest bank to sell its brokerage and investment banking unit.

Regions, a 2,000-plus branch bank headquartered in Birmingham, Ala., has hired Goldman, Sachs & Co. to look at potential new options for Morgan Keegan, or “strategic alternatives” to counter the costly settlement that Morgan Keegan was handed by financial regulators, The Birmingham News reports.

One of those options is selling Morgan Keegan, the corporation's investment banking and brokerage firm that operates in 20 states and employs more than 3,000 people. Banking analysts say selling the subsidiary would be a positive move for the shareholders of Regions, the only bank of its size still receiving government assistance through programs created by the bailouts:

Regions’ announcement came Wednesday at the same time authorities issued details of the settlement, which is the result of an investigation centered on seven proprietary mutual funds sold by Morgan Keegan broker-dealers to more than 30,000 account holders. Those seven funds lost about $1.5 billion during the year ended March 31, 2008.

Morgan Keegan and one of its affiliates, Morgan Asset Management, were accused of making material omissions and misrepresentations in marketing materials and regulatory filings.

The firms also withheld information from the Morgan Keegan sales force, provided preferential treatment to certain customers and failed to adequately supervise their employees, according to the allegations.

The firms did not admit or deny the majority of the allegations.

Read more here.

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