SFO Criminally Charges Barclays, 4 Executives Tied to Market Crisis

Judge Roy Bean was known as a hanging judge. A saloon-keeper and justice of the peace he called himself the law west of the Pecos. Trials were held in his saloon. Hangings followed according to legend, although he is only known to have executed two men.

Since the market crisis many have clamored for a return of Judge Bean’s brand of justice – Wall Street executives should have been imprisoned if not hung in Foley Square in New York City. The feeling persist even today. Never mind that there has been a near endless stream of market crisis cases brought by the DOJ, the SEC and banking regulators. Never mind that the SEC brought numerous market crisis cases, naming firms and their executives as defendants. Never mind that the DOJ brought even more cases imposing billions of dollars in penalties after effectively extended the statute of limitations using an all but forgotten statute.

Endless frustration is, perhaps, about to end. A major international bank and its senior executives have been criminally charged for conduct tied to the market crisis. Not a U.S. bank and its executives but a U.K. financial institution and its former senior executives. The charges however, are not for market crisis causing fraud requiring a bail out at taxpayer expense. To the contrary, the charges are tied to loans obtained to save the bank, sparing the taxpayer.

The SFO brought criminal charges against Barclays Plc and four of its then senior officers based on two loans obtained in 2008 from Qatar Holding LLC and Challenger Universal Ltd., an investment vehicle of a former Qatari prime minister. Named as defendants along with the bank are: John Variey, former CEO; Roger Jenkins, former Executive Chairman of Investment Banking and Investment Management in the Middle East; Thomas Kalaris, former Chief Executive of Barclays Wealth and Investment Management; and Richard Boath, former European Head of Financial Institutions Group. Two counts of conspiracy and one count of unlawful financial assistance were filed.

The charges are based on two loans. The first was obtained by the bank in June 2008 for £4.5 billion. The second was obtained in October 2008 in the amount of £7.5 bn. The SFO alleges that the loans involved undisclosed payments made to the lenders for their participation. Each loan was made in conjunction with an advisory services agreement under which the bank paid a total of £322 million to the lenders. The advisory agreement accompanying the June loan was disclosed but the payments were not. The second advisory agreement was not disclosed at the time of the transaction.

An additional charge centers on a £2.4 billion loan made by the bank to Qatar in November 2008. Under Section 151 of the Companies Act 1985, which the SFO alleges was breached, companies are not permitted to lend money for the purchase of their shares. The SFO alleges that the loan was extended so the bank’s lenders could purchase Barclay shares to improve its financial condition.

By obtaining the loans Barclays avoided being nationalized with taxpayer funds. At the time of the transactions Lloyds Banking Group and Royal Bank of Scotland were forced to rely on taxpayer bailouts. Indeed, about one month before the October loan, Lehman Brothers collapsed. Initial court appearances are scheduled for early next month. Whether Judge Bean will be needed remains to be seen.

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