US authorities are suing Barclays and two former executives of fraudulently misleading the public in the sale of tens of billions of dollars in mortgage-backed securities in the period from 2005 to 2007. Department of Justice wrote that ‘’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.’’
According to Department of Justice, Barclays violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and committed mail fraud, wire fraud, bank fraud, and other misconduct.
Principal Deputy Associate Attorney General Bill Baer said that “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.”
Allegedly, Barclays fraudulently sold investors Mortgage Backed Securities full of mortgages it knew were likely to fail, all while telling investors that the mortgages backing the securities were sound. Investors who were very confident about their triple-A rated securities, lost their money after mortgages started to fail and Great Recession started with the bursting of the housing bubble, followed by an enormous drop in U.S. home values, hundreds of bank failures, significant turbulence in financial markets, trillions of dollars of losses to investors, and, most devastatingly, a huge wave of home foreclosures.
According to the Department of Justice, Barclays assured investors that it had excluded “unacceptable” loans and that the loans in the deals had been underwritten under loan origination guidelines intended to ensure the borrowers’ ability to pay.
Other banks experienced similar issues, but unlike Barclays, managed to reach a settlement with Department of Justice and paid heavy fines.