Barclays Capital Inc. [1] has agreed to a settlement of more than $16 million in response to a recent suit filed by the U.S. Securities and Exchange Commission. [2]
The SEC alleged that two Barclays Capital traders charged undisclosed and excessive markups on non-agency retail mortgage-backed securities and made false or misleading statements to Barclays customers. The SEC also charged that Barclays did not properly supervise said traders.
The SEC’s filing against the bank stated that Yoon Seok Lee and David Wong, the traders in question, would mislead customers to convince them to accept less money or pay more for RMBS than they typically would have. The filing specifically cited two instances in which Lee and Wong profited $247,000 and $840,000 off such situations.
All in all, the SEC alleged that Barclays Capital made nearly $9 million profits due to Lee and Wong’s misleading activities, as well as another $6 million from their excessive markups. These markups, according to the SEC, often “bore no reasonable relationship to the prevailing market prices.”
Barclays does have policies in place to prevent traders from similar activities. However the SEC charged that the bank did not properly review or implement procedures to check for violations of these policies. The electronic monitoring system the bank had in place was ineffective, and a system error let questionable trades fall through the cracks.
A unit of Barclays PLC, Barclays Capital will now pay $15.5 million in remediation to customers and another $1 million in civil penalties. Barclays also agreed to nearly $12 million in disgorgement and interest.
Yoon Seok Lee and David Wong, the traders in question, agreed to individual settlements, though neither denied or admitted to the charges. Lee will pay $200,000, and Wong will pay $125,000. They are also suspended from any association with investment advisers, broker-dealers, and municipal securities dealers for one year.
Both Lee and Wong had already been dismissed from Barclays before the charges in question were filed; Lee was dismissed in 2015, while Wong was dismissed a year later. Both dismissals stemmed from inaccurate communication with customers.