The Financial Industry Regulatory Authority (FINRA), the independent regulator of all securities firms doing business in the United States, has announced that it has fined Barclays Capital Inc. $3 million for misrepresenting delinquency data and inadequate supervision in connection with the issuance of residential sub-prime mortgage securitizations (RMBS). Issuers of sub-prime RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors. Historical delinquency rates are material to investors in assessing the value of RMBS and in determining whether future returns may be disrupted by mortgage holders' failures to make loan payments.
FINRA found that from March 2007 through December 2010, Barclays misrepresented the historical delinquency rates for three sub-prime RMBS it underwrote and sold. The inaccurate delinquency data posted on Barclays' Web site was referenced as historical information in five subsequent RMBS investments and contained errors significant enough to affect an investor's assessment of subsequent securitizations. Additionally, Barclays failed to establish an adequate system to supervise the maintenance and updating of relevant disclosure on its Web site.
"Barclays did not have a system in place to ensure that delinquency data posted on its Web site was accurate; therefore, investors were supplied inaccurate information to assess future performance of RMBS investments," said Brad Bennett, FINRA executive VP and chief of enforcement. Barclays neither admitted nor denied the charges, but consented to the entry of FINRA's findings.