"The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities... significantly contributed to the financial crisis"
As alleged in the complaint, from 2005 to 2007, Barclays personnel repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses as a result of the fraudulent scheme.
The DOJ is also bringing charges against two former Barclays executives: Paul K. Menefee who served as Barclays’ head banker on its subprime RMBS securitizations, and John T. Carroll who served as Barclays’ head trader for subprime loan acquisitions.
The alleged scheme involved no fewer than 36 RMBS deals, securitizing over $31 billion worth of subprime and Alt-A mortgage loans.
The DOJ says Barclays "systematically and intentionally misrepresented key characteristics" of the loans it included in these RMBS deals and that its due diligence was a "sham".
In a statement, the DOJ said: "In general, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. In addition, as alleged in the complaint, mortgaged properties were systematically worth less than what Barclays represented to investors. The deals were dismal failures, as more than half of the underlying residential mortgages defaulted, resulting in billions of dollars in losses to investors. Even investors in AAA-rated tranches of these securities, which were rated as safe as investments in U.S. Treasury bonds, suffered or will suffer significant losses."
Principal Deputy Associate Attorney General Bill Baer added: “The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities injured tens of thousands of investors and significantly contributed to the Financial Crisis of 2008. Millions of homeowners were left with homes they could not afford, leaving entire neighborhoods devastated. The government’s complaint alleges that Barclays fraudulently sold investors RMBS full of mortgages it knew were likely to fail, all while telling investors that the mortgages backing the securities were sound.”
