WASHINGTON (AP) — Investment firm Morgan Keegan & Co. is paying $200 million to settle civil fraud charges that it overstated the value of mortgage investments just as the housing market was collapsing in 2007 and lured buyers of its funds with false sales materials.

Morgan Keegan's parent company, Regions Financial Corp., also announced Wednesday that it hired investment bank Goldman Sachs & Co. to explore "potential strategic alternatives" for Morgan Keegan. The alternatives could include a sale of the firm or divisions of it.

Federal and state regulators said the actions of Morgan Keegan, based in Memphis, caused investors in five funds to lose an estimated $1.5 billion. Morgan Keegan failed to use "reasonable" procedures to calculate the value of securities in the funds backed by high-risk mortgages, the regulators said. The firm misrepresented the value of the funds and the risk involved to entice people to invest, they said.

Half of the money will go toward compensating investors.

The U.S. Securities and Exchange Commission, regulators in Alabama, Kentucky, Mississippi, South Carolina and Tennessee, and securities industry regulators announced the settlement Wednesday. Two former employees of the firm also agreed to pay civil penalties.

It was the latest legal action by regulators in connection with the mortgage meltdown and financial crisis. On Tuesday, Wall Street bank JPMorgan Chase & Co. agreed to pay $153.6 million to settle the SEC's civil fraud charges that it misled buyers of complex mortgage investments just as the housing market was collapsing.

Regulators have been investigating a number of major banks' actions ahead of the financial crisis that plunged the country into the most severe recession since the 1930s. More charges are expected.

Of the $200 million that Morgan Keegan agreed to pay, a $75 million penalty and $25 million in restitution was levied by the SEC. The remaining $100 million will go to a state fund, with the money to be distributed to investors who were harmed.

In addition, Morgan Keegan agreed not to make valuations of securities for investment funds for three years. The firm got out of the valuation business in 2008.

"The falsification of fund values misrepresented critical information exactly when investors needed it most — when the subprime mortgage meltdown was impacting the funds," SEC Enforcement Director Robert Khuzami said in a statement. "Such misconduct does grievous harm to investors."

Regions, based in Birmingham, Ala., received $3.5 billion in taxpayer funds under the federal financial bailout in 2008 and hasn't yet repaid the government.