Articles Posted in Barclay’s Bank

Barclays Capital Gets FINRA Fine for Unsuitable Mutual Fund Transactions

The Financial Industry Regulatory Authority said that Barclays Capital, Inc. (BARC) must pay over $10M in restitution plus interest to customers that were impacted by violations related to unsuitable mutual fund transactions. The self-regulatory organization said that the firm did not give certain customers the breakpoint discounts that applied. Aside from the restitution, Barclays must pay a $3.75M fine.

According to the SRO, from 1/10 through 6/15, the firm’s supervisory systems were not adequate enough to make sure that unsuitable transactions didn’t happen or that the firm’s duties related to mutual fund sales to retail brokerage clients were met. FINRA said that Barclays supervisory procedures wrongly defined a mutual fund switch as warranting three transactions within a specific period of frame. Because of this erroneous definition, the firm did not act on thousands of automated alerts warning of transactions that might be unsuitable, failed to include certain transactions for suitability review, and neglected to make sure that customesr got disclosure letters about transaction costs. Over 6,100 unsuitable mutual fund switches occurred, causing r about $8.63M in customer harm.

FINRA said that the Barclays did not give its supervisors enough guidance so that they could make sure that brokerage customers were engaging in mutual fund transactions that were suitable for their investment goals, holdings, and ability to tolerate risks. The SRO, which evaluated activities over a six-month period of time, said that 39% of mutual fund transactions were found unsuitable and customers suffered financial harm, including realized losses, of over $800K.

Also, during these five years, the firm’s supervisory system did not succeed in making sure that purchases were properly aggregated so eligible customers could get breakpoint discounts, including those involved in 100 Class A share mutual fund transactions.

By settling, Barclays is not denying or admitting to FINRA’s charges. It is, however, consenting to the entry of findings.
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Barclays Resolves Securities Fraud Claims Related to Libor Rigging
Barclays PLC (BARC) has consented to pay $120 million to resolve securities fraud claims accusing the bank of conspiring with competitors to manipulate the London Interbank Offered Rate, also known as Libor. Barclays is the first to settle allegations made by “over-the-counter” investors.

It was just last month that the British bank consented to pay $94M to resolve litigation accusing it of trying to rig Euribor, which is the euro-denominated equivalent of Libor. Barclays has admitted to rigging both benchmarks. The bank paid settlements to regulators in the United States and in Great Britain.

Libor is used to establish rates on hundreds of trillions of dollars of transactions, such as those involving student loans, credit cards, and mortgages. Banks use Libor to assess how much it will cost to borrow from each other. To date, over a dozen banks have been sued for conspiring to rig Libor.

U.S. District Judge Naomi Reice Buchwald in New York, who approved the class action settlement, said in August that the plaintiffs could win fraud claims if they proved that panel banks lied to the administrator of Libor about borrowing costs and the plaintiffs had depended on these fallacies. Buchwald, in 2013, threw out a “substantial” chunk of this private case, which included federal antitrust claims.

Investment Advisory Firm, Co-Founders to Pay $1M to Settle Custody Rule Violation Charges
Sands Brothers Asset Management LLC and co-founders Steven Sands and Martin Sands will pay a $1 million penalty to resolve Securities and Exchange Commission charges accusing them of violating the custody rule. They also have consented to a year suspension from raising funds from existing or new investors. The firm will under go compliance monitoring for three years. Ex-COO and CCO Christopher Kelly will pay a $60K penalty and serve a one-year suspension from acting as a COO or practicing in front of the SEC as a lawyer.

Under the custody rule, firms have to get independent confirmation of assets when they can control or access client funds or securities. This is so that investors know their money is protected from misuse or theft. The firm, the two Sands brothers, and Kelly settled the charges without or denying or admitting to them.
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New York Attorney General Eric Schneiderman has filed a securities fraud lawsuit against Barclays (BARC) Plc. accusing the British bank of lying about giving preference to high-frequency traders. The state contends that Barclays took part in fraudulent activity related to a dark pool. The British-based bank has 20 days to respond to the securities fraud charges.

Financial Industry Regulatory Authority data says that for the first week of June 2014, LX was the number two biggest alternative trading system in the United States. According to the high frequency trading case, LX, which is Barclays’ dark pool, favors computer-driven firms that can weave their way through the market at super fast speeds yet downplays how much these high-frequency traders use the venue.

Schneiderman says that the bank falsely depicted the way it routes the orders of clients and claimed to protect them from high-speed firms, when really the dark pool was run to the advantage of these traders. He claims that Barclays even specifically sought to bring in high-speed traders to LX, giving them preferential treatment over others by providing them with details about the way the dark pool is run.

FINRA Fines Merrill Lynch, Goldman, and Barclays Capital $1M Each Over Blue Sheet Data

The Financial Industry Regulatory Authority has issued a censure that fines Goldman Sachs & Co. (GS), Merrill Lynch, Pierce Fenner & Smith Inc., and Barclays Capital Inc. $1 million each. The firms are accused of not submitting accurate and complete data about trades conducted by them and their customers to the SRO and other regulators. This information is known as “blue sheet” data. Firms are legally required to give regulators this information upon request.

Blue sheets give regulators specific information about trades, including the name of a security, the price, the day it was traded, who was involved, and the size of transaction. This information is helpful to identify anomalies in trading and look into possible market manipulations.

The Financial Industry Regulatory Authority said it is fining Barclays Capital Inc. (ADR) $3.75 million for systemic failures that prevented it from making sure certain instant messages, emails, and electronic records are preserved in the way they are required be for at least a decade. The financial institution is settling without denying or admitting to the findings. It has, however, agreed to an entry of the SRO’s findings.

According to FINRA, between 2002 and 2012, Barclays did not preserve a lot of records and electronic books in WORM format, per regulator mandate. This included trade confirmations, trade information, order and trade ticket data, blotters, accounting records, and other records. WORM (Write-Once, Read-Many) Format is the non-erasable, non-rewriteable format that business-related electronic records are supposed to be kept in-per FINRA rules and federal securities laws. The Securities and Exchange Commission says that this format and the preservation of records are essential in protecting investors and ensuring that compliance with securities laws is taking place.

In regards to Barclays over this matter, FINRA says that the issues were widespread and affected all of the firm’s business. It said that because of this, Barclays couldn’t determine whether all of its e-books and records were kept in an a manner that was unalterable. Also, Barclays is accused of not properly keeping certain attachments to Bloomberg emails and not properly keeping about 3.3 million Bloomberg instant messages. Also, Barclays purportedly did not set up and maintain a proper system and written procedures so it could comply with FINRA, SEC, and NASD regulations and rules involving the requirements noted in the violations.

The Financial Industry Regulatory Authority is ordering four financial firms to pay $105,000 in fines for Municipal Securities Rulemaking Board violations related to political contribution, pricing, supervision, and other rules. The SRO noted the fines in its monthly disciplinary report.

One firm, Interactive Brokers LLC, must pay $7,500 for trade reporting violations related to Rule G-14’s requirements. The financial firm is accused of not reporting 60 sale and purchase transactions to the Real Time Transaction Reporting System within 15 minutes of their execution during 2010’s third quarter.

A second firm, Barclays Capital Inc, has to pay $15,000 for violating rules G-14, G-8, and G-27. The firm purportedly did not report 40 transactions to the RTRS, also within 15 minutes of their execution during 2011’s second quarter. It is accused of not reporting the correct trade time of 66 transactions.

According to ABC News, Rachel Walsh, 32, has filed a $10 million lawsuit against Barclays Capital claiming that they fired her because she had to take a long leave of absence and subsequently terminated her child’s health coverage. Walsh’s child was born with cancer.

She is alleging gender discrimination and breach of contract. Because Walsh waived her right to a trial when she signed her employment agreement with the financial firm, the Financial Industry Regulatory Authority will be arbitrating her case.

Walsh was hired by Barclays to fill the position of global finance assistant vice president. (Prior to that she worked at Merrill Lynch (MER) and Ernst and Young.) During her first year with the financial firm, she was given a bonus, a raise, and a good end-of-year review. She also became pregnant but continued to work until three week prior to her delivery date when her doctor ordered her to bed due to pregnancy complications.

The U.S. Court of Appeals for the Second Circuit has reversed a lower court’s ruling and decided that under New York law, Theflyonthewall.com Inc., an online financial news service, may not be held liable for disseminating the equity research recommendations found in reports of plaintiffs Barclays Capital Inc., Morgan Stanley & Co. Inc., and Merrill Lynch Pierce Fenner & Smith Inc. The appeals court’s Judge Robert D. Sack concluded that federal copyright law preempts the ‘Hot News’ misappropriation claim.

The financial firms’ reports contain research about public companies, their securities and business prospects, and their respective industries. The reports summarize these findings, which often include recommendations about holding, selling, and buying the subjects’ securities. The firms give clients and prospective ones these reports before the US securities markets open daily as an “informational advantage.”

The plaintiffs accused Fly, which has managed to get a hold of these recommendations and issue them before the brokerage firms had given them to the public or before the exchanges that the securities are traded have opened, of copyright infringement. Concurring with the plaintiffs, a lower court then barred the news service from both infringing on the copyrighted aspects of the brokerage firms’ research reports and publishing their recommendations until after the New York Stock Exchange opened.

Now, however, the appeals court is saying that “a firm’s ability to make news… does not give rise to a right for it to control who breaks the news and how.” The court reversed and remanded the earlier claim and told the district court to dismiss the brokerage firms’ misappropriation claim under New York law.

Related Web Resources:

Theflyonthewall.com Inc.

Read the district court’s opinion (PDF)

Brokerages Lose in Appeals Court On N.Y. ‘Hot News’ Misappropriation Claim, BNA Securities Law Daily, June 20, 2011

More Blog Posts:

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011
China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg, Stockbroker Fraud Blog, February 28, 2011
Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court, Stockbroker Fraud Blog, January 17, 2010 Continue reading

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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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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