Barclays PLC (NYSE: BCS) has reached an agreement with the U.S. Justice Department to pay $2 billion to settle civil penalties, filed back in 2016, in which an investigation team looked into Barclay underwriting and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.
The settlement comes to a close after a three-year investigation, in which the complaint allegedly claimed that Barclays caused billions of dollars in losses to investors due to fraudulent activity to sell 36 RMBS deals.The matter misled investors about the quality of mortgage loans backing those deals.
The complaint says that the 36 RMBS deals, totaling $31 billions were more than halved by default. The U.S. claims that the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, leading to high rates. In addition, the mortgaged properties were worth much less than what Barclays had presented to investors.
Barclays also reached an agreement with former executives, Paul Menefee, the head banker on Barclay’s subprime RMBS securitizations, and John Carroll, the head trader for subprime loan acquisitions. The two both agreed to pay the U.S. a total of $2 million in civil penalties.
Barclays denies all allegations.
“The actions of Barclays and the two individual defendants resulted in enormous losses to the investors who purchased the Residential Mortgage-Backed Securities backed by defective loans,” stated FHFA-OIG Inspector General Wertheimer. “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates.