Barclays (BCS) Fined $361M by SEC for Securities Selling Gaffe

Almost a week after being sued by the two Florida pension funds, Barclays BCS has agreed to pay $361 million to the U.S. Securities and Exchange Commission (“SEC”). It was fined over the failure to maintain control that led to the sale of an extra $17.7 billion of exchange-traded notes (ETNs), which it was not permitted to issue.

Of the total amount, $200 million is civil penalty and the remaining is disgorgement and prejudgment interest charges. BCS has neither accepted nor denied the SEC’s findings that it had failed to implement any internal checks to track such transactions on a real-time basis.

Gurbir Grewal, director of the SEC’s Division of Enforcement, said, “While we acknowledge Barclays' efforts to identify, disclose and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering.”

In July, the company CEO C.S. Venkatakrishnan commented, “The fact that this overissuance matter occurred in the first place is particularly disappointing,” while noting that the bank “will try ceaselessly to improve” to prevent future mistakes.

Notably, the company restated its full-year 2021 financial statements due to “the over-issuances and internal control failure.”

Case Background

The blunder originated from a prior enforcement settlement that BCS had agreed to with the SEC in 2017. Under this, the company lost its status as a well-known seasoned issuer (WKSI), which allowed it to sell notes in the United States with “flexible filing requirements.”

Hence, the company had to quantify the number of securities it expected to offer, and sell and pay registration fees for those securities in advance. In August 2017, BCS agreed to offer and sell roughly $20.8 million ETNs for a period of three years.

As a result of this requirement, the company employees knew that additional monitoring of the actual offer and sale of ETNs were needed on a real-time basis. However, BCS failed to establish a process for doing so. Hence, when in March 2022, it was realized that extra ETNs had been issued, the SEC was alerted, and the company stopped the further issuance of securities.

BCS had issued almost 75% more ETNs than it was permitted to.

Follow-up Actions by Barclays

Subsequent to this blunder, Barclays has been taking certain remedial measures and offered to buy back the excess securities at the original purchase price and pay interest penalties. In this regard, the company on Sep 15 noted that investors had submitted claims covering $7 billion of the securities.

Additionally, the company put aside nearly £1.6 billion for the over-issuance. This dented its second-quarter 2022 results.

Over the past year, shares of BCS have lost 37.9% compared with a 17.1% decline of the industry it belongs to.

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Currently, Barclays carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Malpractices by Other Banks

Several banks continue encountering legal probes and have been charged huge sums of money for business malpractice.

Regions Financial Corp RF has been asked by the U.S. Consumer Financial Protection Bureau to pay $191 million in redressal and fines for levying illegal overdraft fees from 2018 to 2021.

While the bank no more charges these fees, it will have to pay a $50-million civil monetary penalty and refund customers around $141 million charged earlier. The financial impact of the settlement will be reflected in RF’s third-quarter 2022 results.

A unit of The Bank of New York Mellon Corporation BK was charged with a record fine and a reprimand by the Central Bank of Ireland. The company broke the rules on outsourcing fund administration services and provided “inaccurate and incomplete information” to the regulators.

BNY Mellon Fund Services DAC admitted to the breaches, which took place between July 2013 and December 2019. It was fined €10.78 million ($11.8 million) for 16 regulatory breaches. The penalty was reduced from €15.4 million as the company decided to settle.


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