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Barclays Prevails in Two Lawsuits Over $17.7B Securities Overissuance
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Barclays PLC (BCS - Free Report) secures dismissal of two U.S. securities fraud lawsuits tied to the excess debt sale of $17.7 billion than what regulators permitted. This was reported by Reuters.
Details of the Lawsuit Faced by Barclays
Investors who engaged in short-selling of Barclays' iPath Series B S&P 500 VIX Short-Term Futures exchange-traded notes (VXX) claimed monetary losses, alleging they relied on the bank’s assurances regarding its internal controls and regulatory adherence. They asserted that the company’s failure to comply with regulatory limits and its suspension of VXX issuances in March 2022 triggered a market squeeze, causing VXX prices to surge 140% over its indicative value.
In March 2022, Barclays acknowledged that it sold $15.2 billion more structured and exchange-traded notes in the past five years than the $20.8 billion limit approved by U.S. regulators.
Four months later, the oversold amount jumped to $17.7 billion and Barclays offered to repurchase the excess amount while keeping aside £1.59 billion ($2.01 billion) for the overissuance.
Further, Barclays revised its 2021 financial statements, with its executives describing the overissuance as a “self-inflicted” issue that was “entirely avoidable.”
Rationale Behind Dismissal of BCS’ Lawsuit
No Fraudulent Intent: The judge, Lewis Liman, ruled that there was no evidence Barclays deliberately defrauded investors or acted without diligence. He argued that the bank's officials, including former CEO Jes Staley, would have had an incentive to register securities appropriately rather than letting the problem persist.
Barclays' Corrective Actions: The bank took remedial actions, such as halting sales, disclosures to regulators and the public, and proposing a buyback program. The judge perceived these actions as indicative of good faith rather than deception.
Investor Claims Rejected: Investors claimed they were misled about Barclays' internal controls and incurred losses when the VXX price surged 140% during a market squeeze. Yet, the court couldn’t find adequate grounds for these allegations, ruling that Barclays' general statements about its internal controls were not actionable.
Regulatory and Legal Consequences: In September 2022, Barclays paid $361 million in settlement charges to the U.S. Securities and Exchange Commission, which included a $200 million fine linked to the overissuance. In December 2022, the company agreed to a $19.5 million settlement in a distinct shareholder lawsuit.
Barclays Zacks Rank & Price Performance
Over the past six months, shares of Barclays have gained 29.5% compared with the industry’s growth of 9.5%.
Earlier this month, Wells Fargo & Company’s (WFC - Free Report) 2021 consent order related to loss mitigation practices in its Home Lending business was terminated by the Office of the Comptroller of the Currency. This marks the 11th consent order of Wells Fargo, which has been closed by regulators since 2019.
Given that loans are among the largest assets a bank can hold, lifting the asset cap will mark a positive turning point for Wells Fargo. This will allow the bank to offer loans without restrictions, supporting the top-line expansion and positioning it for long-term growth.
Similarly, Robinhood Markets Inc.’s (HOOD - Free Report) units — Robinhood Financial and Robinhood Securities — have to pay $26 million to settle Financial Industry Regulatory Authority (FINRA) allegations for failing to respond to red flags about potential misconduct and not verifying the identities of thousands of customers.
Also, FINRA has ordered Robinhood Financial to pay $3.75 million in compensation to the trading platform’s customers.
HOOD failed to supervise and retain social media communications promoting the firm, which were posted by paid social media influencers. Some of these communications included statements that were promissory or not fair and balanced, and, thus, were misleading to investors.
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Barclays Prevails in Two Lawsuits Over $17.7B Securities Overissuance
Barclays PLC (BCS - Free Report) secures dismissal of two U.S. securities fraud lawsuits tied to the excess debt sale of $17.7 billion than what regulators permitted. This was reported by Reuters.
Details of the Lawsuit Faced by Barclays
Investors who engaged in short-selling of Barclays' iPath Series B S&P 500 VIX Short-Term Futures exchange-traded notes (VXX) claimed monetary losses, alleging they relied on the bank’s assurances regarding its internal controls and regulatory adherence. They asserted that the company’s failure to comply with regulatory limits and its suspension of VXX issuances in March 2022 triggered a market squeeze, causing VXX prices to surge 140% over its indicative value.
In March 2022, Barclays acknowledged that it sold $15.2 billion more structured and exchange-traded notes in the past five years than the $20.8 billion limit approved by U.S. regulators.
Four months later, the oversold amount jumped to $17.7 billion and Barclays offered to repurchase the excess amount while keeping aside £1.59 billion ($2.01 billion) for the overissuance.
Further, Barclays revised its 2021 financial statements, with its executives describing the overissuance as a “self-inflicted” issue that was “entirely avoidable.”
Rationale Behind Dismissal of BCS’ Lawsuit
No Fraudulent Intent: The judge, Lewis Liman, ruled that there was no evidence Barclays deliberately defrauded investors or acted without diligence. He argued that the bank's officials, including former CEO Jes Staley, would have had an incentive to register securities appropriately rather than letting the problem persist.
Barclays' Corrective Actions: The bank took remedial actions, such as halting sales, disclosures to regulators and the public, and proposing a buyback program. The judge perceived these actions as indicative of good faith rather than deception.
Investor Claims Rejected: Investors claimed they were misled about Barclays' internal controls and incurred losses when the VXX price surged 140% during a market squeeze. Yet, the court couldn’t find adequate grounds for these allegations, ruling that Barclays' general statements about its internal controls were not actionable.
Regulatory and Legal Consequences: In September 2022, Barclays paid $361 million in settlement charges to the U.S. Securities and Exchange Commission, which included a $200 million fine linked to the overissuance. In December 2022, the company agreed to a $19.5 million settlement in a distinct shareholder lawsuit.
Barclays Zacks Rank & Price Performance
Over the past six months, shares of Barclays have gained 29.5% compared with the industry’s growth of 9.5%.
Image Source: Zacks Investment Research
Currently, BCS carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Regulatory Probes Faced by Other Finance Firms
Earlier this month, Wells Fargo & Company’s (WFC - Free Report) 2021 consent order related to loss mitigation practices in its Home Lending business was terminated by the Office of the Comptroller of the Currency. This marks the 11th consent order of Wells Fargo, which has been closed by regulators since 2019.
Given that loans are among the largest assets a bank can hold, lifting the asset cap will mark a positive turning point for Wells Fargo. This will allow the bank to offer loans without restrictions, supporting the top-line expansion and positioning it for long-term growth.
Similarly, Robinhood Markets Inc.’s (HOOD - Free Report) units — Robinhood Financial and Robinhood Securities — have to pay $26 million to settle Financial Industry Regulatory Authority (FINRA) allegations for failing to respond to red flags about potential misconduct and not verifying the identities of thousands of customers.
Also, FINRA has ordered Robinhood Financial to pay $3.75 million in compensation to the trading platform’s customers.
HOOD failed to supervise and retain social media communications promoting the firm, which were posted by paid social media influencers. Some of these communications included statements that were promissory or not fair and balanced, and, thus, were misleading to investors.