Barclays and Traders Settle SEC RMBS Mark Up Case

On May 1, 2017, the Securities and Exchange Commission ("SEC") filed three Orders Instituting Administrative Proceedings (the "OIPs") against Respondents Barclays Capital, Inc., Yoon Seok Lee, and David F. Wong. In anticipation of the institution of proceedings by the SEC but without admitting or denying the findings, Barclays, Wong, and Lee each submitted an Offer of Settlement, which the federal regulator accepted.

• In the Matter of Barclays Capital, Inc., Respondent (Barclays OIP; '34 Act Rel. No. 80560; Admin. Proc. File No. 3-17953 / May 1, 2017) 
• In the Matter of Yoon Seok Lee, Respondent (Lee OIP; '34 Act Rel. No. 80561; Invest. Co. Act Rel. No. 32617; Admin. Proc. File No. 3-17953 / May 1, 2017) 
• In the Matter of David F. Wong, Respondent (Wong OIP; '34 Act Rel. No. 80562; Invest. Co. Act Rel. No. 32618; Admin. Proc. File No. 3-17953 / May 1, 2017) 

8. In one instance, for example, Lee received from a customer an order to sell $46,814,037 original face amount of a bond at a price of 101-00.5 Lee then sought to sell the bond to another customer. Throughout the ensuing negotiations, Lee made false or misleading statements to both the buyer and the seller, including

a. misrepresenting to the buyer that the offer price was 102-08 "subject to call" rather than the 101-00 price that the seller had offered;

b. misrepresenting to the seller that the bid price was 99-00 rather than the 99- 16 price that the buyer had bid;

c. at a time when Lee was negotiating to sell the bond at a price much higher than 100-02, misrepresenting to the seller that Lee could sell the bond for 100-02 and that Barclays wanted to make four ticks on the transaction; this led the seller to reduce to 99-30 the 100-00 price that, by then, the seller had determined it wanted to receive, so that Barclays could make four ticks on the transaction by buying the bond at 99-30 and selling it at 100-02; and

d. shortly after agreeing to buy the bond for 99-30, misrepresenting to the buyer that it looked like the seller's best price was 100-24.

Lee ultimately sold the bond for 100-20. Based on the then current face amount of the securities traded, the twenty-two ticks received by Barclays constituted profits of approximately $247,000.

9. In another instance, Wong was negotiating the sale of $17,500,000 original face amount of a bond to a buyer. Wong learned that Barclays already had purchased the bond at issue for a price of 44-08. Throughout the ensuing negotiations, Wong made false or misleading statements to the buyer, including

a. misrepresenting that the seller had given an offer of 52-16 for the bond when there was no such offer from the seller;

b. misrepresenting that Wong was uncertain whether the buyer's 48-24 bid would induce the seller to lower its 52-16 offer;

c. misrepresenting that the seller had rejected the buyer's 49-00 "all in" bid and had given a counter-offer of 51-16; and

d. misrepresenting that Wong would try to "squeeze" a few ticks out of the seller

Wong ultimately sold the bond to the buyer for 50-00. Based on the then current face amount of the securities traded, Barclays made profits of approximately $840,000 on this transaction.

22. In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Barclays and significant cooperation afforded Commission staff. Respondent has implemented certain procedures to prevent and detect the type of misconduct described above in the Order. With respect to false or misleading statements, Barclays to date, has implemented procedures for the review of electronic communications for the detection of potentially false or misleading statements to Barclays customers, has conducted training related to such conduct and the types of statements that are prohibited, and has incorporated training related to such conduct into the annual training provided to trading personnel. With respect to excessive mark-ups, Barclays has replaced the defective compliance system that was in place during the Relevant Period with another compliance system that is designed, among other things, to detect potentially excessive mark-ups and has included training on unreasonable mark-ups in the annual training provided to trading personnel.

23. Barclays has cooperated by, among other things, preparing and providing to Commission staff hundreds of chronologies of transactions involving the conduct that is the subject of the Order; preparing and producing trading data from the Relevant Period; identifying mark-ups charged by Lee and Wong; and making available relevant witnesses. The cooperation that Barclays provided helped enable Commission staff to direct the focus of the Commission's investigation and to shorten significantly the amount of time needed to conduct the investigation.

Ongoing Cooperation

24. Barclays agrees to cooperate fully with the Commission in any and all investigations, litigations, or other proceedings relating to or arising from the matters described in the Order. In connection with such cooperation, Barclays shall (i) produce, without service of a notice or subpoena, any and all non-privileged documents and other information requested by Commission staff; (ii) use its best efforts to cause its officers, employees, and directors to be interviewed by Commission staff at such time as Commission staff may reasonably direct; (iii) provide any certification or authentication of business records of the company as may be reasonably requested by Commission staff; (iv) use its best efforts to cause its officers, employees, and directors to appear and testify without service of a notice or subpoena in such investigations, depositions, hearings or trials as may be requested by Commission staff; and (v) consistent with all lawful obligations, maintain in strict confidence communications with Commission staff pursuant to this provision.

• SEC
• OIP
• Cease And Desist
• RMBS
• Barclays
• Mark Up
• Commission
• BrokeAndBroker
• Bill Singer