Barclays unit faces SEC insider trading probe, civil action looms

The Securities and Exchange Commission is contemplating recommending a civil enforcement action against a unit of Britain’s Barclays PLC for debt trading that was done while employees served on bankruptcy creditors’ committees. The information was revealed by a March securities filing by Barclays and a lawsuit filed in federal court in New York. The SEC filing holds that the center of its investigation is trading in 2002 and 2003 and the enforcement action would be for contravention of US securities laws. According to reports, Barclays, Europe’s biggest underwriter of corporate bonds, exploited confidential information from serving on creditors’ committees to trade securities of bankrupt companies. The US SEC has reportedly evidences that Barclays gained profit from advance knowledge of market-moving developments its analysts and traders received from the bankruptcy panels. The report further said that the information was revealed by a person on terms of anonymity since the three-year investigation is not public. However, incoming information also suggest that London- based Barclays is in discussion with the SEC to settle charges that it broke insider-trading rules. The on-going probe underscores the possibility for conflicts of interest as banks lend money to foundering clients while also trading their securities. Barclays, the UK’s third-largest bank, has almost doubled trading revenue from credit products, including bonds and loans, in the last two years. Speculations are high that Barclays may reach a settlement agreement with the SEC in the next few weeks and probably will pay a fine. The present investigation erupted from the alleged actions of a small proprietary trading desk in the New York office of Barclays Capital, where few employees traded loans and bonds of distressed companies, according to the filing. In the meanwhile, Bloomberg reported that one of those former employees, Michael Econn, charged Barclays last month in federal court in New York for breach of contract, arguing he had been unjustly penalized because of the on going inquiry. Econn had further disclosed that desk traders routinely joined bankruptcy committees for the firms whose loans and bonds they traded, including those of Galey & Lord, a bankrupt fabric firm.