Barkley's in the US Justice Department are engaged in a legal battle over the suspected fraudulent sale of mortgage securities a decade ago. But is there a settlement in the offing? In the offing, they've reopened negotiations about an out of court settlement at the request of the London Bank, According to people with knowledge of the situation, joining us as Professor Robert Hocket of Cornell University Law School, Bob, let's
begin with the lawsuit itself tell us about it. Yeah, so this is in a certain sense kind of familiar, at least as far as the content of it goes right. The claim is that Barkley's quite cavalierly sold defective mortgage backed securities to its various customers, and that it's financed, indeed, the extending of mortgage loans to people who are very bad risks. So it's essentially a kind of classic sort of securities fraud type claim or wire fraud type claim.
Um quite a great deal like many other such cases or suits that we've heard about in the year's past. What was sort of different about this one was essentially the sort of tardiness with which it was filed. This wasn't filed until last December, and in the essentially the waning days of the Obama Justice Department, well bob other lenders negotiated settlements worth tens of billions of dollars in
penalties overall, rather than risk litigation. Deutsche Bank paid seven point two billion dollars, but people familiar with the situation say Barkley's was willing to pay no more than two billion to settle the matter, while the Justice Department reportedly demanded five billion. What are some of the possible reasons that Barkley's preferred having the government suet well that there seemed to be two possibilities at least that come to
my mind. The first is that Barkley's actually believed what it said at the time, which was that, well, look, we didn't do nearly as much of this kind of thing as the other banks did, and we certainly didn't do anything nearly as much as the American banks did. Uh, and so the settle, the kind of settlement that would be reasonable for us, should be much lower than were the settlements for other American banks, especially, but also other
European banks, including Deutsche Bank. UM. So that was that was one I think. I mean, if they believed that when they said it, then that might be one reason
they might have been standing on principle. A second possibility is that because the suit in their case was sort of looming fairly late in the game, and by which I mean late in the in the time of the Obama administration, they might very well have been guessing or betting that they could actually do better with a Trump to Justice Department in any event, because that department doesn't seem to have been quite as zealous about pursuing securities
broad type matters, although it must be said that the Obama o j wasn't particularly zealous about this either. Barclay's asked a federal judge in Brooklyn to dismiss the case this month now, in April, the judge skeptically urged Barkley's to settle rather than request the case dismissal. So is that a clear ignal or fairly clear signal that they're unlikely to win dismissal of the government suit? Yeah, I think that's a very that's that's not a particularly ambiguous
signals that way. And there was one other signal that came out as well, and that was that the Trump p o J contested right, that particular request, right, that particular motion to dismiss was contested by the Trump d o J. And that itself might also have come as something of a surprise to Bartley's because again, you know, one leading theory I suppose as to what Barkley's is thinking is that or at least what they were thinking, is that they were probably thinking that they would actually
again fair better under a Trump d o J. And that doesn't seem to be happening for them, So they seem to be reassessing partly on that basis. And Bob, the bank and its chief executive officer are also under scrutiny in the UK, the Bank by the Serious Fraud Office and Justice Daily by the Financial Conduct Authority. What's happening there, Well, that's still in aggress. Uh. And and you might recall we talked a little while back about other charges has been brought against Barkley's back at home
by those UK offices. So Barkley's has been implicated. And again I have to stress that's not to say that they've been found guilty, but but uh, they have been implicated in a number of scandals and in recent years. Uh, and so there's still you know, under active investigation in the UK, partly for mortgage fraud type matters of the kind that are the subject of the current d o
J negotiations, but also for other ones as well. So have those lawsuits in the different situations Barkley that is facing contributed to its decline in stock this year and might that be moving Barkley's also towards US settlement. Well, yeah, that's a great, great point and I think that's has been another very important piece of the story here. Right.
So as you know, um, the stock I guess Barkley Stows declined something like eight percent over the past year UM, in particular after yesterday right when they reported a significant decline in their trading revenue. I think so the fact that the firm is not doing so well in the market at the moment, and the fact that uncertainty looming over it when it comes to litigation of both in the UK and here in the US on the part of actual law enforcement authorities, probably isn't a welcome situation
for the to be in. And I'm sure at this point they'd be really happy to be kind of get it behind them as quickly as they can, just to get rid of the uncertainty. Always great to have you on the show, Bob, I appreciate your candor. That's Robert Hockett, professor at Cornell University Law School, coming up on Bloomberg Law.
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