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Barclays PLC and Barclays Bank agreed to pay $361 million to settle Securities and Exchange Commission (SEC) allegations that the bank failed to implement internal controls to track the sale of unregistered securities, resulting in $17.7 billion in unregistered securities transactions over nearly three years.
The SEC imposed a $200 million civil penalty on Barclays, as well as disgorgement and prejudgment interest totaling more than $161 million on injured investors. Without admitting or rejecting the SEC's allegations, Barclays agreed to stop further violations and implement remedies to comply with Section 5 of the Securities Act, which bans the direct or indirect selling of securities unless a registration statement has been filed and is in existence with the SEC.
Both Barclays PLC and Barclays Bank reissued their year-end 2021 audited financial statements filed with the SEC as a result of the alleged overissuances and internal control issues.
“This case highlights why it is essential for firms like Barclays to have robust internal controls over their offers and sales of securities,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in a press release. “While we acknowledge Barclays’s efforts to identify, disclose, and remediate this conduct, the control deficiencies and the scope of the conduct at issue here was simply staggering.”
Compliance considerations: In May 2017, Barclays PLC and Barclays Bank lost their SEC classification as well-known seasoned issuers (WKSI). According to the SEC's ruling, Barclays Bank filed an amended registration statement in February 2018 to convert its former WKSI shelf to a non-WKSI shelf for the approximately 18 months remaining until its expiration.
“The 2018 shelf was declared effective on March 30, 2018, and included a specification of the maximum aggregate offering price of securities available to be offered or sold from the 2018 shelf,” the order said.
Barclays Bank registered a new non-WKSI shelf to replace the 2018 shelf in June 2019. The 2019 shelf was proclaimed effective on August 1, 2019, and included a definition of the maximum aggregate offering price of securities available to be offered or sold from the 2019 shelf, according to the SEC.
As the 2018 shelf neared its end, it still had securities available for future offers or sales. Barclays Bank determined the number of securities required for offers or sales from the 2018 shelf between the filing of the 2019 shelf and the effective date of the 2019 shelf, as well as the number of securities remaining on the 2018 shelf. However, because Barclays Bank did not track the sale of securities in real time during this period, the SEC determined that the carry-over calculations from the 2018 and 2019 shelves were erroneous.
As a result, Barclays Bank sold approximately $1.3 billion more securities than were registered with the SEC for the 2018 shelf and roughly $16.4 billion more securities than were registered with the SEC for the 2019 shelf.
In March, Barclays Bank self-reported the overissuances to the SEC and later made the information public. In May, Barclays PLC and Barclays Bank restated its audited financial accounts for the fiscal year ending 2021 and revealed that they have gone into rescission talks with the SEC to resolve the situation.
According to the SEC, the bank cooperated with its inquiry.
“The time for other firms employing similar shelf registrations to take notice and improve their internal compliance and control functions is now,” Grewal said.
According to the judgement, Barclays PLC and Barclays Bank "started a review of policies and procedures and internal controls relevant to" the bank's SEC-registered shelf as soon as the overissuances were discovered. "an examination of end-to-end processes to identify any substantial control gaps relating to offers and sales off [Barclays Bank's] commission-registered shelves and recommendations for modifications targeted to achieve compliance with Section 5 of the Securities Act," according to the review.
A request for comment from Barclays was not immediately returned.
On Tuesday, the SEC and the Commodity Futures Trading Commission fined 11 financial companies for failing to monitor, maintain, and preserve electronic conversations by employees. Between the two regulators, Barclays agreed to pay $200 million in fines.
By fLEXI tEAM