Barclays PLC and Barclays Bank agreed to pay $361 million to resolve allegations from the Securities and Exchange Commission (SEC) the bank failed to implement internal controls to track the sale of unregistered securities, leading to $17.7 billion worth of unregistered securities transactions over the course of nearly three years.
Barclays was assessed a $200 million civil penalty, while Barclays Bank must pay disgorgement and prejudgment interest of more than $161 million to harmed investors, the SEC announced Thursday. Without admitting or denying the agency’s findings, Barclays agreed to cease and desist from further violations and implement remediations to comply with Section 5 of the Securities Act, which prohibits the direct or indirect sale of securities unless a registration statement has been filed with the SEC and is in effect.
As a result of the alleged overissuances and internal control failures, both Barclays PLC and Barclays Bank restated their year-end 2021 audited financial statements filed with the SEC.
“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: Barclays PLC and Barclays Bank lost their status with the SEC as well-known seasoned issuers (WKSI) in May 2017. In February 2018, Barclays Bank filed an amended registration statement to convert its prior WKSI shelf to a non-WKSI shelf for the approximately 18 months remaining until its expiration, the SEC said in its order.
“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.
In June 2019, Barclays Bank filed a registration for a new non-WKSI shelf to replace the 2018 shelf. The 2019 shelf was declared effective Aug. 1, 2019, and similarly included a specification of the maximum aggregate offering price of securities available to be offered or sold from the 2019 shelf, the SEC said.
As the 2018 shelf was nearing expiration, it still had securities remaining for additional offers or sales. Barclays Bank calculated both the amount of securities needed for offers or sales from the 2018 shelf during the period between the filing of the 2019 shelf and when the 2019 shelf became effective and the amount of securities left on the 2018 shelf. But because Barclays Bank did not track the sale of securities during this period on a real-time basis, the carry-over calculations from the 2018 and 2019 shelves were incorrect, the SEC found.
The result led Barclays Bank to sell approximately $1.3 billion in securities in excess of what was registered with the SEC for the 2018 shelf and approximately $16.4 billion more than what was registered with the SEC for the 2019 shelf.
In March, Barclays Bank self-reported to the SEC about the overissuances and later publicly disclosed the details. Barclays PLC and Barclays Bank restated their year-end 2021 audited financial statements in May and disclosed they had entered into rescission talks with the SEC to settle the matter.
The bank cooperated with the SEC’s investigation, the agency said.
“The time for other firms employing similar shelf registrations to take notice and improve their internal compliance and control functions is now,” Grewal said.
Barclays PLC and Barclays Bank “initiated a review of policies and procedures and internal controls relating to” the bank’s SEC-registered shelves soon after it identified the overissuances, according to the order. The review included “an assessment of end-to-end processes to identify any significant control gaps related to the offers and sales off of [Barclays Bank’s] commission-registered shelves and recommendations for enhancements designed to effect compliance with Section 5 of the Securities Act.”
Barclays declined a request for comment.
The bank was one of 11 financial institutions to receive fines from the SEC and Commodity Futures Trading Commission on Tuesday for failures in monitoring, maintaining, and preserving electronic communications by employees. Barclays agreed to pay $200 million in penalties between the two regulators.