Bankruptcy

Creditors’ Committee Confidential

Former Barclays analysts brings a Sarbanes-Oxley whistle-blower lawsuit and inspires a closer look by the SEC.
Stephen Taub and Dave CookApril 27, 2007

Barclays has disclosed that the Securities and Exchange Commission is investigating allegations that the British bank traded on confidential information obtained from creditors’ committees.

The allegations were raised by former Barclays analyst Michael Econn, who filed a lawsuit against the bank in March, seeking damages under Sarbanes-Oxley whistle-blower provisions, reported the Associated Press.

According to Reuters, Econn stated that in 2002, a Barclays supervisor asked traders on the distressed-debt desk to join creditors’ committees of companies in which they had investments. In 2003 one of the committees subpoenaed Barclays, leading to an internal probe and, ultimately, an investigation of the bank by the SEC, the wire service elaborated.

While investors in companies under bankruptcy protection often sit on creditors’ committees so they can influence the eventual reorganization, they are then restricted from trading in the company’s securities. Some hedge funds and other investors now prefer to participate in ad hoc committees of creditors, which endeavor to influence the bankruptcy proceedings but have no trading restrictions.

Econn testified before the SEC in March 2006, according to Reuters. Barclays reportedly stated in its filing that it has cooperated with the commission and independently addressed the practices, policies, and procedures at issue in 2003, before the SEC began its investigation.

Barclays, which recently announced a takeover of Dutch bank ABN Amro, now faces a higher bid from a consortium comprising Royal Bank of Scotland, Banco Santander, and Fortis.

4 Powerful Communication Strategies for Your Next Board Meeting