Barclays Capital

Barclays Settles DOJ’s Mortgage-Backed Securities Fraud Case for $2B

Published on: April 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Capital Inc. (BARC) and a number of its affiliates will pay $2B to settle the United States government’s civil case alleging fraud involving the underwriting and issuance of residential mortgage-backed securities. The settlement comes after a three-year probe. The case is US v. Barclays Capital Inc.

The US accused Barclays of taking part in a fraud to sell three dozen residential mortgage-backed securities deals, causing investors to suffer billions of losses. More than $31B of Alt-A and subprime mortgage loans were securitized and over half of these went on to default. The RMBSs were sold leading up to the 2007 financial crisis.

The bank and its affiliates allegedly misled investors about the quality of the loans backing the RMBS deals, including purposely misrepresenting key features of the loans that involved. The British bank, meantime, maintains that it did not mislead investors about the quality of the loans. The government, however, contends that Barclays committed wire fraud, mail fraud, bank fraud, and violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

Barclays Faces New Criminal Fraud Charge Over $3B Qatar Loan

Published on: February 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the UK, the Serious Fraud Office is charging Barclays Bank (BARC) with engaging in illegal financial assistance when it gave Qatar Holdings LLC a $3B loan in 2008 so that the latter could acquire shares in Barclays Plc. British prosecutors had previously charged Barclays Plc. and four bank executives with conspiring to commit fraud and providing unlawful financial assistance.

In Britain, public companies are usually not allowed to lend out funds to be used to buy their own shares. Barclays has come under fire for the way it handled investments made by Qatar’s sovereign wealth fund, as well as by a group of investors. The money lent to Barclays is believed to have helped the British Bank avoid getting a tax bailout during the global financial crisis. Such assistance would have likely lead to greater oversight over Barclays and closer examination of how much the bank’s executives were making at the time.

Barclays denies the charges against Barclays Plc. and Barclays Bank, which is its operating arm. Prosecutors, however, believe that the loan funds were put back into the bank to give it the capital it needed.

Barclays Capital Trader is Indicted in Massive Front Running Scam

Published on: January 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A criminal indictment has been issued against Robert Bogucki, Barclays’ (BARC) ex-foreign exchange operation head in New York. Bogucki, who is a Barclay’s trader but has been on leave since late 2016, is accused of involvement in a scam to bilk one of the bank’s clients by engaging in front-running. This type of activity usually involves using advance knowledge about an upcoming order and trading in a way to profit from this information.

The criminal charges against Bogucki include multiple counts of wire fraud and a single count of conspiracy to commit wire fraud. His indictment alleges that in 2011, the ex-Barclays forex trader improperly used the information provided by Barclays’ client Hewlett-Packard Company prior to a significant trade. HP had retained the bank to execute the forex transaction, which involved $8.3B of forex options, and that was tied to plans to acquire another company.

Bogucki and others allegedly used the information given to them by HP to manipulate the “volatility’s” price so as to lower the price of the company’s options. The alleged fraud is said to have caused HP millions of dollars in losses.

“Volatility” is the metric that impacts forex options. Barclays is accused of making misrepresentations to Hewlett-Packard so as to benefit the bank.

Credit Suisse and MBIA Insurance Continue to Fight Over Mortgage-Backed Securities Fraud Claims in Court

Published on: November 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In New York Court of Appeals, MBIA Insurance Corp. and Credit Suisse Securities USA LLC (CS) presented arguments over whether to resuscitate part of the $235M mortgage-backed securities case brought by the insurer against the financial firm. NY Supreme Court Judge Shirley Werner Kornreich previously took out the fraud claim in MBIA’s case after finding that bond insurer wanted the same damages from both that claim and its contract claim. MBIA has since appealed, arguing that Kornreich misread the facts presented, as well as the applicable case law.

The bond insurer contends that both the contract and fraud claims are separate and valid. Credit Suisse, meantime, maintains that contract and fraud claims are “duplicative.”

In addition to cutting the insurer’s fraud claim from the lawsuit, Kornreich rejected MBIA’s request that she find that Credit Suisse breached its warranties regarding the mortgages’ quality in about 29% of instances. The judge also called MBIA to task for not doing its own due diligence regarding the loans’ quality.

Securities News: Ex- HSBC Executive Found Guilty of Fraud Involving $3.5B Currency Trading & Hedge Fund Sues Barclays For Copper Market Rigging

Published on: October 24, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in New York has found Mark Johnson guilty on criminal charges accusing him of front-running involving a $3.5B currency trade. HSBC’s ex-foreign-exchange cash trading global head is the first banker that the US Justice Department charged over forex rate rigging.

Johnson was convicted on eight counts of wire fraud and one count of wire fraud conspiracy, and he reportedly will appeal the verdict. Johnson maintains that he was acting in the best interest of the client involved and he did not do anything wrong or irregular.

According to acting US Attorney in Brooklyn Bridget M. Rohde, Johnson used confidential information given to him by an HSBC client to make trades in an attempt to earn millions of dollars for the bank and himself while costing the client money. He and ex-HSBC European currency trading head Stuart Scott allegedly engaged in front running, which involves making trades based on advanced information about a big market order, with the advanced trades rendering huge profits once the bigger transaction has upped the price. Scott is currently in the UK battling extradition efforts to bring him back to the US.

Barclays Fights $31B Residential Mortgage-Backed Securities Fraud Lawsuit

Published on: October 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In New York federal court, Barclays PLC (BAC) is trying to get the US government’s civil residential mortgage-backed securities fraud lawsuit against it dismissed. Prosecutors went after the British bank, a number of its affiliates, and two ex-employees—former mortgage securitizations head Paul Menefee and former subprime loan acquisitions head trader John T. Carroll.

The government contends that the defendants misrepresented the loans packaged in 36 securitizations from 2005 through 2007 were doing well when, in fact, thousands of them had been deemed defective during the vetting process, with hundreds more in default or delinquent.

The RMBS fraud lawsuit is accusing Barclays of letting the loans be packaged into the securitizations despite knowing they were faulty, and even, on occasion, adding in faulty loans that had already been removed from other deals. According to the government, the securitizations failed badly, over half of the mortgages underlying them defaulted, and investors, including banks that were investors, lost billions of dollars.

Three Ex-Traders Who Worked for Barclays, JPMorgan, and Citigroup Plead Not Guilty to Forex Rigging Charges While BNP Paribas is Fined $246M

Published on: July 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the US, former London traders Rohan Ramchandani, Chris Ashton, and Richard Usher have pleaded not guilty to criminal charges accusing them of conspiring to manipulate prices in the foreign exchange market. Ashton previously worked at Barclays (BARC) as the bank’s global head of spot currency trading. Ramchandani used to be Citigroup’s (C) G-10 spot currency trading head. Usher served a similar role at JPMorgan & Chase (JPM).

Prosecutors are accusing them of conspiring with other traders in a Forex rigging scheme to share sensitive client information through an electronic chat room referred to as the “Cartel,” as well as via phone, in order to quash competitors.

The criminal charges are related to a global probe into currency market rigging. To date, seven banks have paid approximately $10B fines over this type of manipulation, including Citigroup, Barclays (BARC), JPMorgan, and Royal Bank of Scotland (RBS).

SEC Investigates Morgan Stanley and Barclays Bankers Over Puerto Rico Bond Sales

Published on: July 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Barclays (BARC) and Morgan Stanley (MS) were underwriters when the island sold $3.5 billion of bonds in 2014. According to Bloomberg, brokerage firm records submitted to the Financial Industry Regulatory Authority (“FINRA”) indicate that the U.S. Securities & Exchange Commission’s (“SEC”) staff is recommending that the SEC file an enforcement case against Barclays bankers James Henn and Luis Alfaro. The two men are under investigation for allegedly violating fair dealing in selling Puerto Rico bonds. They are also under investigation for alleged violations of securities rules and municipal bond rules as they pertain to misrepresentation, deception and fraud related to the securities.

Additionally, Bloomberg reports the SEC’s staff wants to issue a sanction against Morgan Stanley Managing Director Charles Visconsi and his ex-colleague Jorge Irizarry over disclosures that Puerto Rico made in documents that were sent to investors. The staff is interested in whether the broker-dealer adequately examined representations that were made by the island’s government. Visconsi and Irizarry reportedly have not been accused of any intentional misconduct.

In other Puerto Rico bond fraud news, the Puerto Rico Electric Power Authority (“PREPA”) has joined the island in filing bankruptcy protection. PREPA is currently overburdened with $9 billion of debt.

UK Files Criminal Charges Against Barclays With Fraud Involving Qatari Investors

Published on: June 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The United Kingdom’s Serious Fraud Office has charged Barclays (BARC) and four of its ex-executives with criminal fraud involving money used to rescue the bank during the height of the 2008 financial crisis. The government has been investigating the ways in which Barclays sought out Qatari investors to help it stay afloat during that time so that the bank wouldn’t need a bailout. Barclays is also under investigation in the US by the Securities and Exchange Commission and the Department of Justice over payments that Barclays made to Middle Eastern officials.

During two emergency cash calls in 2008, investors put in $15B total, with Barclays stating in filings that it paid £322 million in “advisory services” to them. Shareholders were at first not apprised of this agreement between the bank and Qatari investors. Also, in 2008, Barclays issued a $3B loan facility to Qatar.

In the UK, it is against the law for a company to give money to a party in exchange for the latter’s purchase of company shares. Barclays has denied that the $3B loan was for the purchase of shares by investors. It also has argued that payments it received for advisory services were for actual business purposes. However, the Serious Fraud Office is alleging that the $3B loan to Qatar just weeks after getting funding from investors could be considered a fraudulent capital increase in a scam by Barclays to lend itself funds.

SEC Cases: Barclays Will Pay $97M for Overcharging Clients, Regulator Accuses Ex-Staffer of Securities Fraud, Whistleblower is Awarded Over $500K, and Two Chinese Citizens Face Penny Stock Scam Allegations

Published on: May 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Barclays Must Pay Back Sales Charges, Advisory Fees
The US Securities and Exchange Commission announced that Barclays Capital (BARC) has settled securities charges accusing the firm of overbilling clients. As part of the resolution, which includes paying over $97M, Barclays must pay back advisory fees and mutual fund sales charges to clients that were affected. The firm is settling without denying or admitting to the SEC’s findings.

The SEC’s case involved three sets of violations resulting in almost $50M in client overcharges. According to the Commission, two of Barclays advisory programs charged over 2,000 clients for services that were not conducted as presented. Meantime, 63 broker-dealer clients paid too much in mutual fund sales charges or fees because Barclays recommended that they purchase more costly share classes even though there were less expensive ones available. Also, over 22K accounts paid Barclays excess fees because the firm made billing mistakes and miscalculations.

Ex-SEC Staffer Accused of Securities Fraud
The SEC has filed charges against David R. Humphrey, one of its ex-employees, for securities fraud related to trades that he made. Humphrey worked with the regulator from 1998 to 2014.