Dive Brief:
- Barclays is set to pay $19.5 million to settle a proposed class-action lawsuit over accusations of securities fraud, based on a Tuesday court filing.
- The British bank, which sold far more in structured debt products than regulators permitted, was sued by shareholders who said they lost money after assuming Barclays would follow policies and procedures that met regulatory standards, according to a court filing.
- The preliminary settlement, filed Tuesday in the U.S. District Court for the Southern District of New York, has to be approved by Judge Katherine Polk Failla.
Dive Insight:
The lawsuit, filed in September 2022, stems from an error the bank discovered six months earlier.
Barclays had registered with the Securities and Exchange Commission in August 2019 to sell $20.8 billion in exchange-traded notes tied to stock volatility and oil.
But the lender abruptly halted share creation in those two products in March 2022 after realizing it had oversold its limit by $17.7 billion. The over-issuance of securities led the bank to ultimately set aside £1.59 billion ($2.01 billion), since it had to buy the notes at their original purchase price, Reuters reported.
The bank agreed in September 2022 to pay $361 million to settle charges brought by the SEC related to the error.
The lawsuit focuses on whether Barclays violated securities law through statements it made when it was issuing the unregistered securities and while disclosing the extent of what plaintiffs called the “resulting damage.”
Barclays sought to dismiss the lawsuit, but Polk Failla said in a February order that plaintiffs had adequately backed up claims that Barclays’ failure to disclose its lack of internal controls to prevent over-issuance of securities constituted a material omission of fact. Further, plaintiffs argued executives such as former CEO Jes Staley had been “actionably reckless” in assuring investors the company was complying with securities laws.
The lawsuit covers investors who bought or acquired American depository shares of Barclays between Feb. 18, 2021, and Feb. 14, 2023.
The lawsuit contends the bank “made false and misleading statements and omissions” during that period “regarding the strength and efficacy of Barclays’ internal controls over financial reporting following its loss of ‘well-known seasoned issuer’ status in the United States, and becoming an ‘ineligible issuer.’”
That designation was the result of a settlement with the SEC tied to a Barclays subsidiary in 2017. As “ineligible issuers,” Barclays and Barclays Bank PLC had to quantify the total amount of securities they expected to offer and sell through statements filed with the SEC, and pay registration fees for those securities ahead of time, according to the lawsuit.
The lender continues to deny “each and every claim” alleged in the lawsuit, but has said it would be “protracted and expensive” to continue legal proceedings, according to Tuesday’s court filing.
