Barclays was sued by the U.S. Justice Department for allegedly deceiving investors who bought mortgage-backed securities, according to court papers filed in federal court in Brooklyn.
The lawsuit announced on Thursday is rare for the big banks, which typically negotiate a settlement rather than risk a trial. The breakdown in talks suggests that the bank is willing to take its chances with the incoming enforcement officials in the Trump administration. The bank has lined up a lawyer known for his aggressive defense of clients including Lt. Col. Oliver North.
Barclays is one of a handful of European banks, including Deutsche Bank, HSBC Holdings, Credit Suisse, UBS Group and Royal Bank of Scotland, that have yet to settle the long-running U.S. probe 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 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 probes.
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 a complaint filed Thursday in federal court in Brooklyn. 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."
Even before the election of Donald Trump to the presidency, the bank had hired an outside law firm as a signal that it wouldn't budge on the penalty figure. That law firm is Williams & Connolly, a person familiar with the matter said. The firm's top lawyer, Brendan Sullivan, is known in Washington as an aggressive litigator who relishes courtroom combat.
Sullivan's spirited defense of Oliver North in the 1980s during the Iran-Contra hearings and subsequent criminal trial established him as a fighter. 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. Ted Stevens of Alaska. Charges against Stevens, who died in a plane crash in 2010, were dismissed by the judge.
Barclays has set aside £2.5 billion ($3.1 billion) for investigations and litigation since the start of 2014.
