Barclays prevails in U.S. court over $17.7 billion overissuance claims

Barclays has won a major legal setback for investors in two U.S. securities fraud lawsuits stemming from the bank's unauthorized sale of $17.7 billion in additional securities, a decision delivered by U.S. District Judge Lewis Liman in Manhattan on Friday.

The lawsuits, targeting Barclays’ issuance of its iPath Series B S&P 500 VIX Short-Term Future exchange-traded notes (VXX), were dismissed after the judge ruled that investors could not sue based solely on the bank's general assurances regarding its internal controls. The decision also dismissed similar claims from investors adversely affected by a market squeeze when Barclays halted VXX sales in March 2022—an action that caused the price of VXX securities sold short to soar 140% above their indicative value.

Judge Liman’s 111-page ruling found no evidence of intent to defraud or conscious recklessness by Barclays officials, including former Chief Executive Jes Staley. The court noted that the bank’s remedial efforts—such as suspending sales, issuing timely disclosures to regulators and the public, and offering a buyback of the overissued securities—constituted a prudent response that weakened any inference of fraudulent intent.

The legal action follows revelations that Barclays had, over a span of five years, sold $15.2 billion more structured notes and exchange-traded notes than U.S. regulators permitted—a figure later revised to $17.7 billion. Barclays has described the overissuance as "entirely avoidable" and "self-inflicted." In response to the controversy, the bank reached a $361 million settlement with the U.S. Securities and Exchange Commission in September 2022, which included a $200 million civil fine, and later agreed to a $19.5 million settlement in a related shareholder lawsuit.

Investors had argued that the failure to adhere to regulatory limits and the subsequent disruption when VXX sales were suspended caused significant market distortions and financial harm. However, Judge Liman determined that the claims did not demonstrate a sufficient basis for fraud allegations.

With the dismissal of these lawsuits, Barclays has effectively closed another chapter in the protracted legal battles following its issuance blunder. Neither Barclays nor the investors' lawyers immediately responded to requests for comment.