NEW YORK, May 11 (Reuters) - The U.S. Securities and Exchange Commission may launch a civil proceeding against the Morgan Keegan & Co brokerage unit of Regions Financial Corp (RF.N: Quote, Profile, Research) over the alleged improper sale of auction-rate securities, Regions said on Monday.

In its quarterly report filed with the SEC, Regions said the regulator filed a "Wells Notice" in March against Morgan Keegan. Such a notice indicates that civil action is possible, and gives the recipient a chance to mount a defense.

Regions said the SEC is investigating the adequacy of Morgan Keegan's disclosures of liquidity risks associated with auction-rate debt, and whether it sold a large volume of the debt after its ability to support the auctions was diminished. It said Morgan Keegan has cooperated with the SEC, and is buying back auction-rate debt it sold to retail customers.

Rates on auction-rate debt reset in periodic auctions. Regulators say brokerages misled investors into believing the debt was safe and the equivalent of cash. After the $330 billion market seized up in February 2008, many investors could not sell the debt or could sell it only at a loss.

Regions is based in Birmingham, Alabama. (Reporting by Jonathan Stempel, editing by Maureen Bavdek)