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Barclays RMBS Suit: Three Strikes and the Order is Out

legal decisionWhile the 2008 may seem like it’s far in the review mirror, for Barclays [1] it’s front and center as the bank finds itself still disputing the sale of $31 billion of RMBS during the financial crisis.

Most recently, a New York magistrate judge denied a joined discovery order “for the third and final time” in a suit that was first brought in December 2016 by the U.S. Department of Justice [2] (DOJ) against the bank.

According to Law360 [3], U.S. Magistrate Judge James Orenstein denied the request as it “ease[d] the litigation burdens of the two sides in the case while taking away rights form third parties that are not in the lawsuit and have not had the chance to weigh in.”

This case centers around the allegation that Barclays and two former employees (Paul K. Menefee, who was in charge of mortgage securitizations , and John T. Carroll, who was head trader for subprime loan applications) attested that 36 securitizations packaged rom 2005 to 2007 were thoroughly vetted and performing.

However the DOJ’s case is that more than half of the underlying mortgages in these securitizations went on to default resulting in millions of dollars of losses.

“Certainly dialogue has picked up with the DOJ over the last quarter or so,” RBS CFO Ewen Stevenson said in October according to Bloomberg. The paper reports that the bank is “optimistic” to settle this fiscal year. However, this won’t be painless, as the bank may have to pay more than $8 billion to close the case.

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