Barclays has reached a $2 billion (£1.4bn) settlement with the US Department of Justice (DOJ) relating to the sale of mortgage-backed securities in the lead up to the financial crisis.
It follows a three-year investigation into allegations that Barclays caused billions of dollars of losses to investors by “engaging in a fraudulent scheme” to sell Residential Mortgage-Backed Securities (RMBS) between 2005 and 2007.
The bank was said to have misled investors about the quality of the loans backing those deals.
The DOJ alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail, wire and bank fraud and other misconduct.
Two former Barclays executives have also reached a combined settlement of $2 million (£1.4m): Paul Menefee, who was head banker of subprime RMBS securitisation unit, and John Carroll, who worked as the head trader for subprime loan acquisitions.
Richard Donoghue, US Attorney for the Eastern District of New York, said: “This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct.
“The substantial penalty Barclays and its executives have agreed to pay is an important step in recognising the harm that was caused to the national economy and to investors in RMBS.”
Barclays said the settlement resolves “all actual and potential civil claims by the DoJ” relating to securitisation, underwriting and sale of mortgage-backed securities in the period.
“It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible,” said CEO Jes Staley.
The complaint involved 36 RMBS deals, which made $31bn (£22bn) of subprime and Alt-A mortgage loans tradeable on the market.
It alleged that the borrowers whose loans backed those deals were “significantly less trustworthy” than Barclays made out, while the mortgaged properties were “systemically worth less” than what had been presented to investors.
More than half of those loans defaulted.