Barclays PLC was sued Thursday by the U.S. Justice Department that alleged investors who bought mortgage-backed securities were deceived, according to court papers filed in federal court in Brooklyn, N.Y.
The lawsuit is rare for the big banks, which typically negotiate a settlement rather than risk a trial. The bank has lined up a law firm whose top lawyer is known in Washington for his aggressive defense of clients including Lt. Col. Oliver North.
Barclays is one of a handful of European banks, including Deutsche Bank AG, HSBC Holdings PLC, Credit Suisse, UBS Group AG and Royal Bank of Scotland, that have yet to settle the long-running U.S. investigation as the Obama administration seeks to resolve the last major investigations from the financial crisis. The U.S. has extracted more than $46 billion from six U.S. financial institutions over their dealings in mortgage-backed securities.
Barclays executives tried to draw the line at $2 billion in penalties to settle with the government, which made an opening offer it deemed too high, a person familiar with the situation told Bloomberg News in October. The Justice Department's starting point for negotiations wasn't disclosed.
"Barclays jeopardized billions of dollars of wealth through practices that were plainly irresponsible and dishonest," Attorney General Loretta Lynch said in a written statement. "With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people."
Barclays rejected the government's claims in a written statement.
"Barclays considers that the claims made in the complaint are disconnected from the facts," it said. "We have an obligation to our shareholders, customers, clients and employees to defend ourselves against unreasonable allegations and demands."
The other banks under investigation declined to comment on the Barclays suit, even as they negotiate over how much they'll pay to resolve their own mortgage-securities investigations.
The British bank repeatedly deceived investors about the quality of more than $31 billion in loans backing the securities that were sold between 2005 and 2007, the Justice Department said in the complaint filed Thursday. More than half of the underlying loans defaulted, the government said, after consultants reviewed the loans and called them "craptacular" and bearing the "distinct aroma of default."
Barclays' American depositary receipts fell 1.8 percent to $11.07 at 4:02 p.m. in New York and earlier dropped as low as $11.03 after the lawsuit was disclosed.
The bank hired law firm Williams & Connolly, signaling that it wouldn't budge on the penalty figure, a person familiar with the matter said. The firm's top lawyer is Brendan Sullivan.
Sullivan defended North in the 1980s during the Iran-Contra hearings and subsequent criminal trial. More recently, Sullivan was vindicated when a federal judge determined that prosecutors had unfairly withheld evidence that would have helped the case of his client, former Sen. Theodore Stevens of Alaska. Charges against Stevens, who died in a plane crash in 2010, were dismissed by the judge.
Barclays has set aside $3.1 billion for investigations and litigation since the start of 2014.
Business on 12/23/2016