On Friday, an American judge said that Barclays would have to deal with a proposed class action from investors who claimed the British bank had committed securities fraud by selling $17.7 billion more debt than regulators had permitted.
According to U.S. District Judge Katherine Polk Failla in Manhattan, shareholders sufficiently claimed that Barclays made a substantial omission of fact when it failed to reveal the lack of internal controls that could have prevented five years of fraudulent debt transactions.
Additionally, she allowed shareholders to demonstrate that Barclays and many other executives, notably former CEO Jes Staley, had acted “actionably recklessly” in guaranteeing the bank’s compliance with federal securities rules while it “blindly” marketed the debt.
Following this, bank executives described the over-issuance as a “self-inflicted” and “entirely avoidable” issue that could have been avoided without the need for “rocket science.”
Laptops 1000The case was prompted by Barclays’ disclosure in March 2022 that, during the previous five years, it had sold $15.2 billion more structured and exchange-traded notes than the $20.8 billion approved by US regulators.
The bank raised the amount oversold to $17.7 billion four months later. In addition to setting aside 1.59 billion pounds ($2 billion) for the over-issuance, it offered to buy back the excess.
According to Failla’s 57-page ruling, Barclays might face legal action from shareholders for claims that the bank was “committed to operating within a strong system of internal control” and that its policies and processes complied with legal requirements.
Such claims are sometimes too general to sustain legal action, the judge noted, but Barclays’ case had a “critical difference” as its debt sales tracking system “did not just underperform – it did not exist.”
Additionally, Failla decided that statements made by Barclays following the discovery of the over-issuances would not be grounds for shareholders to file a securities fraud lawsuit.
Laptops 1000As expenses grew due to the error, the lawsuit encompassed shareholders who lost money in Barclays’ American depositary receipts between February 18, 2021, and February 14, 2023.
As CEO, Staley resigned in November 2021.
In re Barclays Plc Securities Litigation is the case number for the Southern District of New York U.S. District Court case, which is 22-08172.
