A New York federal judge has declined to reconsider his prior dismissal of a securities class action lawsuit alleging Barclays PLC misled investors regarding its internal controls and the sale of unregistered securities. The decision reaffirms the court’s earlier ruling that the plaintiffs’ arguments fail to meet the necessary legal standards.
U.S. District Judge Lewis J. Liman issued the opinion and order on Tuesday, rejecting the request from plaintiffs Ruth May, Donna Ledgerwood, Justin Reed, Jeffrey Knapp, and Mark Howarth—collectively known as the May plaintiffs—to revisit two key conclusions from the March dismissal.
The lawsuit arose following Barclays’ loss of its “well known seasoned issuer” (WKSI) status after settling a U.S. Securities and Exchange Commission (SEC) enforcement action in May 2017, involving a $97 million payment related to client overcharges. The loss of WKSI status required Barclays to disclose various bank-issued notes to the SEC prior to issuance.
In March 2022, Barclays identified gaps in its internal controls that failed to monitor the issuance and sale of certain securities from shelf registration statements. Consequently, the bank issued billions of unregistered securities, including exchange-traded notes such as the “Barclays Bank PLC iPath Series B S&P 500 VIX Short-Term Future” (VXX), which facilitated trading on short-term volatility of the S&P 500 Index options.
The issuance errors led to restrictions on issuing further notes and triggered intense market activity, including extended short squeezes. The plaintiffs allege they purchased VXX notes that were over-issued prior to a 4:1 reverse split.
In their motion for reconsideration, the plaintiffs challenged the court’s finding that the reverse split did not constitute a “sale or offer” under the Securities Act of 1933, a key point in dismissing their claim of purchasing unregistered securities from Barclays. The judge disagreed, finding that Barclays did not receive new value in the reverse split transaction, and plaintiffs had contractually granted Barclays the right to effectuate the split.
Additionally, the plaintiffs contested the dismissal of their Section 11 claim, arguing the court erred in rejecting a Barclays pricing supplement related to the reverse split as a defective registration statement. Judge Liman reaffirmed that plaintiffs cannot invoke this pricing supplement because their shares were acquired under the pre-split registration statement operative at the time.
The court also denied the plaintiffs’ request to amend their complaint, ruling such an amendment would be futile.
Representatives for both parties did not immediately respond to requests for comment.
Plaintiffs’ Counsel: Mazin A. Sbaiti, Jonathan Bridges, Kevin N. Colquitt, Griffin S. Rubin – Sbaiti & Company PLLC
Defendant’s Counsel: Jeffrey T. Scott, Matthew J. Porpora, Julia A. Malkina – Sullivan & Cromwell LLP
Case: May et al. v. Barclays PLC et al., Case No. 1:23-cv-02583, U.S. District Court, Southern District of New York.
