U.S. Sues Barclays for RMBS Fraud

BROOKLYN, NY — The U.S. government has filed a civil complaint accusing Barclays Bank plc and its U.S. affiliates of orchestrating a massive fraud scheme that dumped billions in toxic residential mortgage-backed securities (RMBS) on unsuspecting investors before the 2008 crash. From 2005 to 2007, Barclays knowingly sold securities backed by defective and misrepresented subprime loans, racking up profits while leaving investors holding the bag for catastrophic losses.

The lawsuit, filed in the Eastern District of New York, names two former Barclays executives: Paul K. Menefee of Austin, Texas, who served as the bank’s head banker on subprime RMBS securitizations, and John T. Carroll of Port Washington, New York, the bank’s head trader for subprime loan acquisitions. Both men are accused of directing and concealing the fraud, misrepresenting loan quality, and pushing deals built on shaky, often fraudulent, mortgage data.

Allegations detail a pattern of deception: Barclays personnel repeatedly assured global investors the securities were safe and backed by sound loans, while internally acknowledging the loans were deeply flawed. Investors — including credit unions, pension funds, religious institutions, university endowments, and financial firms — poured tens of billions into these products, many within the Eastern District, only to face devastating losses when the housing bubble burst.

The case is brought under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which allows civil penalties equal to the violator’s gain or the victims’ losses. The Department of Justice alleges violations including mail fraud, wire fraud, and bank fraud, with Barclays profiting handsomely while hiding the truth from those who trusted its representations.

“Barclays jeopardized billions of dollars of wealth through practices that were plainly irresponsible and dishonest,” said Attorney General Loretta E. Lynch. “We are sending a clear message: the DOJ will not tolerate the defrauding of investors and the American people.” U.S. Attorney Robert L. Capers added that Barclays repeatedly misled investors and kept critical loan information secret, choosing profits over integrity.

“The widespread fraud that investment banks like Barclays committed… significantly contributed to the Financial Crisis of 2008,” said Principal Deputy Associate Attorney General Bill Baer. The complaint underscores how the bank’s actions didn’t just hurt institutions — they helped unravel communities, displace homeowners, and erode public trust in the financial system. Now, the government demands accountability — from the bank and the men who led the scheme.