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Barclays Settles RMBS Suit

The British bank Barclays has reached a settlement with U.S. authorities over financial crisis-era transactions involving toxic residential mortgage-backed securities (RMBS) sold between 2005 and 2007. Under the terms of the settlement, Barclay’s agreed to pay $2 billion [1] in civil penalties. The U.S. Justice Department also fined two individual Barclay’s bankers for their role in the transactions and the larger financial crisis.

The settlement is just the latest in a string of settlements between various U.S. governmental authorities and banks charged with defrauding or misleading investors as to the quality of toxic RMBS during the years of the financial crisis. In a statement, Barclays CEO Jes Staley called the terms of the settlement "fair and proportionate."

U.S. Attorney Richard Donoghue for the Eastern District of New York said, "This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct. The substantial penalty Barclays and its executives have agreed to pay is an important step in recognizing the harm that was caused to the national economy and to investors in RMBS.”

The two bankers involved in the settlement are Paul K. Menefee of Austin, Texas, who the Justice Department describes as “Barclays’ head banker on its subprime RMBS securitizations,” and John T. Carroll, of Port Washington, New York, who served as “Barclays’ head trader for subprime loan acquisitions.” In exchange for their payment of a combined $2 million in civil penalties, the Justice Department has agreed to drop the claims against the pair.

The firm of Kramer Levin Naftalis & Frankel LLP, represented Menefee during the case. Barry Berke and Dani James, two attorneys from the firm who worked on the case, told AP, “Solely to put this matter behind him, Mr. Menefee has agreed to a settlement in which he has not admitted any wrongdoing.”

Carroll was represented by Crowell & Moring. In a statement, attorney Glen McGorty, a partner at Crowell & Moring, said, “John Carroll is pleased that the government has relented in its efforts to prove wrongdoing where none exists, and consistent with that position, we have agreed to settle this case without an admission to these meritless allegations.”

“The actions of Barclays and the two individual defendants resulted in enormous losses to the investors who purchased the Residential Mortgage-Backed Securities backed by defective loans,” said Laura S. Wertheimer, Inspector General of the Federal Housing Finance Agency Office of the Inspector General (FHFA-OIG). “Today’s settlement holds accountable those who waste, steal or abuse funds in connection with FHFA or any of the entities it regulates.”