US Department of Justice files civil suit against Barclays Bank

US Department of Justice files civil suit against Barclays Bank

On Thursday, the US Department of Justice (DOJ) [official website] filed [Press Release] a civil suit [complaint, PDF] against Barclays Bank [official website] and two former executives for the fraudulent sales of residential mortgage-backed securities (RMBS) from 2005 to 2007. The suit states that Barclays sold billions of dollars worth of RMBS which contained mortgages that violated underwriting guidelines or had borrowers who did not have the ability to repay the loans. These types of mortgages were believed to be one of the causes of the financial crisis in 2008. The two executives named in the lawsuit are Paul Menefee, who was Barclays’ head banker on its subprime RMBS securizations, and John Carroll, who was Barclays’ head trader for subprime loan acquisitions. The lawsuit states that the attorney general is authorized through the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 to “seek civil penalties up to the amount of the gain to the violator or the losses suffered by persons other than the violator.” The Department of Justice and Barclays were previously under negotiations [Wall Street Journal] on a settlement amount regarding the practices. Barclays has already saved $3.1 billion for fines and litigation, while the Department of Justice previously stated $5 billion was a possible fine that may be assigned.

Several banks have faced legal challenges [JURIST backgrounder] stemming from the financial crisis of 2007-08. This month, Deutsche reached a $7.2 billion deal with the Department of Justice. In September the US National Credit Union Administration (NCUA) [official website] said that the Royal Bank of Scotland Group (RBS) [official website] will pay $1.1 billion [JURIST report] after it allegedly solid toxic mortgaged-backed securities. In February, Morgan Stanley agreed to pay $3.2 billion related to their mortgage-back securities. In July 2014 Citigroup, Inc. agreed to pay $7 billion to settle a federal inquiry [JURIST report] into mortgage-backed securities sold by the bank prior to the country’s financial crisis. In November 2013 the DOJ announced that a $13 billion civil settlement [JURIST report] with JPMorgan & Co. [official website] has been finalized, resolving federal and state claims arising from the bank’s risky mortgage practices which helped lead to the 2008 financial crisis. In August 2013 the DOJ filed suit [JURIST report] against Bank of America (BOA) [official website] in the US District Court for the Western District of North Carolina [official website], claiming the corporation misled investors about securitized loans worth more than $850 million.