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January 17, 2010

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets

Read the 5th Circuit Opinion (PDF)

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Posted In: Barclay's Bank , Financial Firms , Securities Fraud , Texas Securities Fraud

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December 14, 2009

Lehman Brothers Sues Barclays for Billions Over Windfall Profit From Asset Sale Transaction

Lehman Brothers Holdings Inc. has filed an adversary complaint against Barclays Capital Inc. requesting the return of billions of dollars in extra profit that it says the latter made when buying Lehman’s North American brokerage business last year. Lehman says that Barclays failed to disclose that it received an illegal payment of at least $5 billion as part of the asset sale transaction. Barclays says that the asset sale terms were delineated in documents that Lehman executives signed.

Lehman is alleging breach of contract, aiding and abetting breach of fiduciary duty, and several violations of the US bankruptcy code. Lehman is seeking punitive damages, compensatory damages, post-judgment interest, return of excess assets, avoidance of excess asset transfers, disgorgement of ill-gotten gains, and, pursuant to Bankruptcy Code Section 502(d), disallowance of Barclays claims against Lehman Brothers Holdings Inc.

According to the adversary complaint, Lehman and Barclays executives made an agreement that Barclays would buy Lehman’s US brokerage business, key real estate pieces, and related support systems. A bankruptcy court approved the deal.

Now, however, Lehman claims that the Sale Transaction were secretly put together in a manner that gave Barclays a huge, immediate windfall profit: Specifically, an undisclosed $5 billion off the book value of assets that were moved to Barclays and later, the undisclosed transfers of billions of dollars in ‘additional value.’

Barclays, however, says that the $5 billion “discount” is in fact the difference between the $45 billion it paid and the $49.7 billion nominal value of Lehman collateral that Barclays assumed and paid for the Lehman assets.

Related Web Resource:
Read the Lehman Brothers Lawsuit

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Posted In: Barclay's Bank , Financial Firms , Lehman Brothers

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October 21, 2009

Two Dresdner Kleinwort Traders Censured for Market Abuse by UK’s FSA

Two Dresdner Kleinwort traders were censured for market abuse by the United Kingdom’s Financial Services Authority. According to the FSA, Darren Morton had access to inside information about a possible new issue of Barclays floating-rate bonds in March 2007 that would offer more favorable terms than the last issue.

The FSA says that Morton shared what he knew with trader Christopher Perry and the two men sold the whole holding of the previous issue held by K2, a Dresdner investment vehicle with a portfolio containing $65 million of Barclay’s FRNs. That same day, a new issue was announced, and counterparties that bought the bonds from K2 lost some $66,000.

Rather than accept the FSA’s offer to settle and receive a fine and/or penalty at a lower amount, the two men took their case to the FSA’s tribunal authority. The regulatory committee found that the two men did not realize that they were engaging in market abuse.

While the two men were censured, they were not fined and their right to work was not challenged. The FSA cited a number of factors to explain the sanction chosen:

• The two did not make money personally from the trade.
• They have undergone market abuse training.
• No one gave them proper guidance.
• Their compliance and disciplinary records are clean.

FSA enforcement director Margaret Cole, however, noted that insider dealing is cheating regardless of the market. She promised that future offenders will be slapped with harsher sanctions.

Related Web Resources:
The FSA and the intriguing case of Dresdner Kleinwort bond managers, Guardian.co.UK, October 7, 2009

SA censures Dresdner traders over market abuse, MarketWatch, October 7, 2009

Financial Services Authority

Continue reading "Two Dresdner Kleinwort Traders Censured for Market Abuse by UK’s FSA" »

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Posted In: Barclay's Bank , Dresdner Kleinwort Securities , Insider Trading

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June 11, 2007

Barclays Bank and its Former Trader to Pay Over $11 Million To Settle SEC Insider Trading Claims

Barclays Bank PLC and a former proprietary trader for Barclays' U.S. Distressed Debt Desk agreed to pay a total of $11.69 million to settle Securities and Exchange Commission charges they traded on inside information received while on the creditors committees for six bankrupt companies. Neither admitted or denied the SEC's claims.

The SEC filed an action in a U.S. District Court in New York claiming the bank and its former agent illegally traded millions of dollars of bond securities while aware of material nonpublic information received through six bankruptcy creditors committees. The six bankrupt debtors were Galey & Lord Inc., Pueblo Xtra International Inc., Desa International Inc., Archibald Candy Corp., Conseco Inc., and United Airlines.

The SEC charged that, for example, the defendants made 82 illegal trades in notes and other securities of United Airlines. In some instances "big boy letters" were issued, but neither Barclays nor its trader ever revealed the inside information to the counterparties, according to the SEC. (A "big boy letter" is an agreement in which the buyer of securities agrees not to sue the seller while acknowledging the seller may possess confidential information the buyer does not have.)

Barclays consented to pay disgorgement of $3,971,736, prejudgment interest of $971,825, and a civil fine of $6,000,000. Its agent paid a fine of $750,000. Both also agreed to be permanently enjoined from violating the antifraud provisions of the federal securities laws.

The law firm of Shepherd Smith and Edwards has assisted investors nationwide to recover a total of more than $100 million. To learn whether we can assist you or your firm to recover your losses, contact us to arrange a free confidential consultation with one of our attorneys.

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Posted In: Barclay's Bank , Broker Fraud , SEC Enforcement

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