Barclays has agreed to a multi-billion-dollar settlement to resolve allegations that it misled investors about the quality of non-prime residential mortgage-backed securities.
The London-based investment banking firm Thursday disclosed that it has reached a settlement with the U.S. Department of Justice.
At issue is the securitization, underwriting and sale of 36 subprime and Alt-A RMBS deals between 2005 and 2007 by Barclays Capital Inc. and several of its affiliates.
Combined, the RMBS totaled more than $31 billion.
The Justice Department accuses the company of
engaging in a fraudulent scheme to sell RMBS by misleading investors about the quality of the loans backing the transactions.
“The complaint alleged that in publicly filed offering documents and in direct communications with investors and rating agencies, Barclays systematically and intentionally misrepresented key characteristics of the loans it included in these RMBS deals,” the Justice Department said in an announcement. “In general, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. In addition, as alleged in the complaint, the mortgaged properties were systematically worth less than what Barclays represented to investors.”
More than half of the loans allegedly defaulted — leading to losses allegedly in the billions of dollars.
Its actions allegedly violated
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Included in the settlement are $2 billion in civil penalties.
The settlement resolves all actual and potential civil claims brought in a civil complaint filed by the Justice Department in 2016.
The complaint, which is being dismissed, followed a three-year investigation by the Justice Department.
In addition, two former Barclays executives — Paul K. Menefee, former’ head banker on its subprime RMBS securitizations, and John T. Carroll, former head trader for subprime loan acquisitions — have agreed to pay $2 million in civil penalties in exchange for the dismissal of claims against them.
“I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice,” Barclays Chief Executive Officer Jes Staley said in the company’s statement. “It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible.”