U.S. sues Barclays for alleged mortgage securities fraud
The Department of Justice sued British banking giant Barclays plc (BCS) and several of its U.S. affiliates Thursday for allegedly deceiving investors who were sold mortgage securities in the years leading to the financial crisis.
Barclays representatives repeatedly misrepresented the investment quality of residential mortgage-backed securities they sold to investors from 2005-2007, the lawsuit charged. As a result, investors from around the world who bought the securities suffered billions of dollars in losses, DOJ officials charged.
"Barclays jeopardized billions of dollars of wealth through practices that were plainly irresponsible and dishonest," U.S. Attorney General Loretta Lynch said in a formal statement announcing the lawsuit. "With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people."
The bank said it "rejects the claims," which represent the latest in a series of legal battles over sales of securities that are widely believed to have played a key role in causing the recession by bursting a U.S. housing bubble and triggering a steep drop in many home values.
"Barclays considers that the claims made in the complaint are disconnected from the facts," the bank said in a written statement. "We have an obligation to our shareholders, customers, clients, and employees to defend ourselves against unreasonable allegations and demands. Barclays will vigorously defend the complaint and seek its dismissal at the earliest opportunity."
Along with charging the bank, the lawsuit names as defendants two former Barclays executives. They are Paul Menefee, 47, of Austin, Texas, who served as Barclays head banker on subprime residential mortgage-backed securities packaging, and John Carroll, 49, of Port Washington, N.Y., who was the bank's head trader for subprime loan acquisitions.
Glen McGorty, an attorney representing Carroll, called the lawsuit "highly unusual." Carroll "intends to challenge these ill-conceived and baseless allegations and expects to be fully vindicated," said McGorty.
Goldman Sachs agrees to tentative $5.1B mortgage settlement
The lawsuit accuses Barclays of falsely offering assurances that the bank had excluded "unacceptable" mortgage loans from the securities sold to investors. Those statements were false, the lawsuit charged. Instead, the bank allegedly ignored or kept secret due diligence reviews that showed a large percentage of the loans were below the quality representations that Barclays gave investors.
"The deals were dismal failures, as more than half of the underlying residential mortgages defaulted, resulting in billions of dollars in losses to investors," DOJ officials said in a statement announcing the lawsuit.
Numerous other major banks have agreed to settle similar lawsuits. In January, for instance, U.S. investment banking and financial services giant Goldman Sachs Group (GS) agreed to pay a $5.1 billion settlement over allegations that targeted its marketing of residential mortgage-backed securities.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc