Authorities in the US have sued Barclays PLC (LON:BARC), the multinational banking and financial business from London, United Kingdom on charges of mortgage securities fraud. According to the U.S. Department of Justice, the British bank has deceived their investors by issuing mortgage loans to customers who had no ability to repay. The department says that the losses go into tens of billions of dollars.
What the Prosecutors Are Saying
The incident actually goes back to the 2005-2007 period, in the run-up to the financial crisis. A lawsuit was filed on Thursday in the U.S. district court in Brooklyn, New York.
The lawsuit also complains that Barclays had inflated the value of homes purposefully before issuing the mortgage loans, which eventually proved to be bad, contributing to the financial crisis. The bank allegedly sold 36 pools of mortgages between 2005 and 2007, knowing fully that they were all likely to fail. Prosecutors complained that Barclays had assured investors that the “mortgages backing the securities were sound”.
The suit has also named two bank executives – Paul K. Menefee, and John T. Carroll. Paul was the head banker for subprime residential mortgage-backed securities at Barclays, while John was the head trader for subprime loan acquisitions.
Barclays PLC Denies the Charges Leveled
Barclays denies all charges. The bank issued a statement saying, “Claims made in the lawsuit are disconnected from the facts”. These are “unreasonable allegations and demands”, the British bank added.
Barclays (LON:BARC) is promising that they will defend their position vigorously and seek the dismissal of the lawsuit at the earliest.
Headquartered in London, Barclays is one of the banks that have been blamed for the financial crisis of 2008, which rocked the economy, and had global impacts. For instance, the real estate market crashed globally. Since then, federal authorities has been carrying out a number of investigations to identify bad loans issued and seek explanations. Incidentally, several American banks have been investigated as well.
Deutsche Bank, Royal Bank of Scotland, and Credit Suisse, of Europe, were also blamed for the crisis.
Many of these banks, such as Goldman Sachs, JP Morgan Chase, Citigroup, and the Bank of America (NYSE:BAC), have already reached multi-billion dollar settlements with prosecutors after lawsuits were filed against them. It remains to be seen what happens to the Barclays lawsuit. There is a possibility that a settlement may be reached even before the court gets to hear the case.