SEC Fines Barclays Over $12.7 Million For RMBS Supervisory
Failures

A preliminary question that many potential
SEC whistleblowers ask is
whether the SEC has jurisdiction to investigate the type of
fraud or misconduct that they have uncovered.  A potential
whistleblower will often raise this question in his or her
first conversation with an
SEC whistleblower lawyer.

Among the types of cases that the SEC investigates are
compliance and supervisory failures at public companies and
financial advisory firms.  A recent case from earlier this
week provides a good example.

Undisclosed, Excessive RMBS Mark-Ups

According to the SEC, two former Barclays traders charged
undisclosed, excessive mark-ups to customers, and made false
and misleading statements to them, while trading residential
mortgage-back securities (“RMBS”).

As set forth in the SEC’s
Administrative Summary
of the case, the false or misleading statements or omissions
made by the two traders pertained to:

• The bid and offer prices for the securities;
• The owners of the securities;
• Undisclosed, excessive mark-ups charged to customers;
• Barclays’ profits for facilitating the trades; and
• While not a traditional “false or misleading statement”, the
  traders created “a fictional third-party” to create the
  false appearance of legitimate price negotiations.

The SEC brought charges against the two traders for the
underlying securities law violations.

Barclays’ Supervisory Failures

It does not appear that the SEC fined Barclays for the
underlying securities law violations.  Instead, the SEC’s
Order focuses on Barclays’ supervisory and compliance
failures.

The SEC’s
Order
imposing sanctions states that Barclays had policies
prohibiting excessive mark-ups, misrepresenting transaction
terms and conditions, giving false or misleading impressions
about the price or value of securities, and misrepresenting to
customers Barclays’ profits on transactions.  Barclays also
had procedures for reviewing electronic communications with
third parties.

Barclays’ alleged supervisory and compliance failures
included:

• Failing to implement procedures for reviewing customer
  communications to identify and prevent false or misleading
  statements; and
• Failing to perform meaningful reviews of customer
  transactions that had been flagged by Barclays’ electronic
  monitoring system for potentially excessive mark-ups.

The Order acknowledges that Barclays provided “significant
cooperation” with the SEC’s investigation.   It also
acknowledges that Barclays undertook remedial actions,
including implementing new procedures and replacing a
“defective compliance system”.

Over $12.7 Million In Disgorgement, Penalties, and Interest

Without admitting or denying the SEC’s allegations, Barclays
agreed to settle the SEC action.  Among other things, Barclays
agreed to pay slightly more than $12.7 million in
disgorgement, prejudgment interest, and penalties.

In addition, Barclays agreed to pay over $15.5 million of its
profits on the subject transactions to its affected
customers.  According to the Order, if Barclays fulfills its
obligation repay its customers, the SEC will deem that to
satisfy the $12.7 million in disgorgement and prejudgment
interest ordered against it.

* * *

About the Pickholz Law Offices LLC

The Pickholz Law Offices LLC is a law firm that focuses on
representing clients involved with investigations conducted by
the U.S. Securities and Exchange Commission, FINRA, and other
securities regulators.

The Pickholz Law Offices has represented employees, officers,
and others in SEC whistleblower cases involving financial
institutions and public companies listed in the Fortune Top
10, Top 20, Top 50, Top 100, Top 500, and the Forbes Global
2000. We were the first law firm ever to win an SEC
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Commission in Washington. Inside Counsel magazine named this
achievement one of the five key events of the SEC
whistleblower program. Examples of the
Firm’s SEC whistleblower cases are available here.

In addition to representing SEC whistleblowers, since 1995 the
Firm’s founder, Jason R. Pickholz, has also represented many
clients in securities enforcement investigations conducted by
the SEC, FINRA, the U.S. Department of Justice and US
Attorney’s Offices, State authorities, and more. Examples of
some of the many
securities enforcement cases that Mr. Pickholz has been
involved with are available here.

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How to Contact the Pickholz Law Offices LLC

If you would like to speak with a securities lawyer or SEC
whistleblower attorney, please feel free to call Jason R.
Pickholz at 347-746-1222.

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