Barclays successfully had two U.S. securities fraud lawsuits dismissed, stemming from the bank's unauthorized sale of $17.7 billion in excess of what U.S. regulators permitted.
U.S. District Judge Lewis Liman in Manhattan ruled that investors who purchased Barclays' iPath Series B S&P 500 VIX Short-Term Future exchange-traded notes (VXX) could not initiate legal action based on the bank's general assurances regarding its internal controls, particularly since the notes were issued without the necessary regulatory approval.
Liman also dismissed similar claims from investors who faced a market squeeze when Barclays suspended VXX sales in March 2022, which led to a 140% increase in the price of VXX securities they had shorted.
The judge determined there was no evidence of intent to defraud or conscious recklessness, noting that bank officials, including former Chief Executive Jes Staley, would have been incentivized to register more securities rather than allow the issue to escalate.
Barclays' remedial actions, which included halting sales, making disclosures to regulators and the public, and initiating a buyback offer, were described by Liman as "a prudent course of action that weakens rather than strengthens an inference of intent to defraud."
Lawyers for the investors involved in both proposed class actions did not respond to requests for comment. Liman’s rulings comprised a total of 111 pages.
Barclays had stopped VXX sales in March 2022 after realizing it had sold $15.2 billion more in structured notes and ETNs over the previous five years than U.S. regulations allowed. The estimated overissuance was later revised to $17.7 billion. Barclays executives have characterized the excess issuance as "entirely avoidable" and "self-inflicted."
In September 2022, Barclays agreed to a settlement of $361 million with the U.S. Securities and Exchange Commission, which included a $200 million civil fine, related to the overissuance. Additionally, in December, the bank settled a corresponding shareholder lawsuit in Manhattan for $19.5 million.
Staley resigned as the bank's chief executive in November 2021. The lawsuits in the U.S. District Court for the Southern District of New York are May et al v Barclays Plc, No. 23-02583, and Puchtler v Barclays Plc et al, No. 24-01872.