Barclays will pay $2 billion in settlement over fraudulent RMBS sales; executives will pay $2 million

Civil money penalties of $2 billion will be paid by a multi-national bank to resolve fraud claims over the sale of residential mortgage-backed securities (RMBS), the Department of Justice (DOJ) announced Thursday.

In a release, DOJ said that it had reached an agreement with Barclays Capital, Inc., and several of its affiliates to pay the penalties in settling a civil action filed by the agency in December 2016. The civil action sought penalties against the financial company for alleged conduct related to its underwriting an issuance of the RMBS over the period of 2005-07.

According to DOJ, Barclays will pay the $2 billion in civil penalties in exchange for dismissal of the action.

Also, DOJ announced, two former executives of the financial company (Paul K. Menefee, of Austin, Texas, who served as Barclays’ head banker on its subprime RMBS securitizations, and John T. Carroll, of Port Washington, N.Y., who served as Barclays’ head trader for subprime loan acquisitions) have agreed to pay $2 million to dismiss claims brought against them individually.

DOJ said that the resolutions follow a three-year investigation in which the complaint in the action, United States v. Barclays Capital, Inc., alleged that the company “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.” The complaint also 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.

“This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct,” said Richard P. Donoghue, United States Attorney for the Eastern District of New York, who announced the settlement. “The substantial penalty Barclays and its executives have agreed to pay is an important step in recognizing the harm that was caused to the national economy and to investors in RMBS.”

Barclays Agrees to Pay $2 Billion in Civil Penalties to Resolve Claims for Fraud in the Sale of Residential Mortgage-Backed Securities