Barclays $298m Settlement Approved, Citi and SEC Going Back to Court
A federal judge approved a $298m settlement to be paid by Barclays Bank Wednesday to settle criminal allegations that the bank violated the International Emergency Economic Powers Act and the Trading with the Enemy Act. Meanwhile a judge in DC is rejecting an agreed-upon claim between Citigroup (C) and the Securities Exchange Commission (SEC) on subprime mortgages investments, ruling that shareholders should not be held accountable in this case. "Not just once, but numerous times over more than a decade, Barclays stripped vital information out of payment messages that would have alerted US financial institutions about the true origins of the funds," said assistant attorney general Lanny Breuer of the Criminal Division of the Department of Justice in a press release. "Banks like Barclays will not be permitted to disregard sanctions put in place by the US government." Court documents said that between 1995 and 2006, the London-based bank made $500m in illegal transactions with Cuba, Iran, Libya, Sudan, and Burma. Barclays reportedly routed US dollar payments through an internal Barclays account to hide the payments' connection to the Office of Foreign Assets Control (OFAC) sanctioned countries. The bank also reformatted the US dollar payment messages to remove information identifying the sanctioned entities. Judge Emmet Sullivan expressed concern about the case, asking why no individuals were being prosecuted. Sullivan called the charges "shocking," but at the end of a hearing that lasted more than an hour, he approved the deal. The verdict comes only days after a federal judge refused approval of the $75m settlement between Citigroup and the SEC. Monday Judge Ellen Huvelle said she would not endorse the sanction and questioned the investigation lead by the SEC into disclosure tactics used by Citi concerning subprime mortgage lending. The SEC accused Citigroup in 2007 of falsely represented the firm's exposure to subprime mortgages by a difference of more than $39bn. The SEC said Citi failed to include "super senior" tranches of subprime collateralized debt obligations and related instruments called liquidity puts and found former CFO Gary Crittenden and former head of investor relations Arthur Tildesley, Jr. mislead investors about these numbers. Citigroup agreed in late July to pay the settlement. But Judge Huvelle of the US District Court for the District of Columbia didn't understand the reasoning. She asked why the company's shareholders, including some who were mislead about subprime mortgage exposure, must pay for the institution's transgressions and why only two Citi executives had been charged. The SEC 's complaint stated that "senior management" had knowledge of the deception. “Why would I find this fair and reasonable?” Judge Huvelle said. “You expect the court to rubber-stamp, but we can’t.” Judge Huvelle set a new case hearing for mid-September where she expects both the SEC and Citigroup to provide additional records and information. Write to Christine Ricciardi.