William E. Burges, et al. v. BancorpSouth, Inc., et al. 14...

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

994810_1 Case 3:14-cv-01564 Document 39 Filed 01/09/15 of 74 PageID #: 327

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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Case 3:14-cv-01564 Document 39 Filed 01/09/15 of 74 PageID #: 328

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.”

* * *


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.”

* * *


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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.

- 66 - 994810_1


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) [email protected] [email protected]

Liaison Counsel

- 67 - 994810_1


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

- 68 - 994810_1


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:[email protected]

994810_1 Case 3:14-cv-01564 Document 39 Filed 01/09/15 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 [email protected]

• Paul Kent Bramlett [email protected]

• Robert P. Bramlett [email protected]

• Patrick V. Dahlstrom [email protected]

• Jeremy A. Lieberman [email protected] ,[email protected]

• Jeffrey B. Maletta [email protected]

• Jerry E. Martin [email protected],[email protected] ,[email protected] ,[email protected]

• Francis P. McConville [email protected]

• Timothy L. Miles [email protected] ,[email protected]

• Jack Reise [email protected]


1 of 2 1/9/2015 1:54 PM

CM/ECF - DC V5.1.1 (September 2013)- https://ecf.tnmd.uscourts.gov/cgi-bin/MailList.pl?388336770762497-L_1_0-1

Thomas Anderton Wiseman , III

[email protected]

• Christopher M. Wood [email protected],[email protected],[email protected]

Manual Notice List

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

wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

• (No manual recipients)


2 of 2 1/9/2015 1:54 PM

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