Barclays to pay $2bn to settle US mortgage misselling claims

US Justice Department said the firm misled investors and committed violations of mail fraud and bank fraud

 

Barclays has agreed to pay $2 billion for allegedly causing billions of dollars of losses to investors by engaging in a fraudulent scheme to sell residential mortgage-backed securities between 2005 and 2007, the US Justice Department said on Thursday.

The department said the firm misled investors about the quality of the mortgage loans backing those deals and committed violations of mail fraud and bank fraud. According to the Justice Department’s statement, Barclays disputes the allegations.

According to the terms of the settlement, two former Barclays executives have also agreed to pay two million US dollars to resolve claims brought against them individually.

It relates to Barclays’ underwriting and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007. Barclays will pay the penalty in exchange for dismissal of the DoJ’s complaint against the British lender.

The DoJ alleged that Barclays caused billions of dollars in losses to investors by engaging in a “fraudulent scheme” to sell 36 RMBS deals, and that it misled investors about the quality of the mortgage loans backing those deals. It alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct.

The two former Barclays executives named as defendants in the suit are Paul Menefee, who was the lender’s head banker on its subprime RMBS securitisations, and John Carroll, who served as head trader for subprime loan acquisitions. In exchange for dismissal of the claims against them, the pair have agreed to pay two million US dollars in civil penalties.