Four former senior Barclays (BARC.L) executives were on Wednesday accused in court of lying to investors about the true nature of an emergency fundraising at the height of the financial crisis.
John Varley, who was CEO of Barclays between 2004 and 2011, Roger Jenkins, who formerly ran Barclays Capital’s investment management business in the Middle East and North Africa, Thomas Kalaris, the former CEO of Barclays’ Wealth Management, and Richard Boath, the former head of European financial institutions group at Barclays Capital, all stand accused of conspiracy to commit fraud by false representation. Varley and Jenkins face two counts and Kalaris and Boath face one.
All four defendants have pleaded not guilty to the charges. Qatar has not been accused of wrongdoing.
The UK’s Serious Fraud Office (SFO) alleges that the four mislead Barclays’ shareholders and the wider market by disguising the amount paid to Qatar when it invested in Barclays at the height of the banking crisis in 2008.
In the dock on Wednesday, Jenkins appeared in a black roll neck jumper and blue jacket. Varley wore a white shirt and grey jumper. Kalaris wore a black suit and Boath wore a blue suit.
The case is the first criminal trial of senior banking executives concerning actions taken during the 2008 crash. Such is the level of interest that the courtroom was standing room only and some people were asked to leave due to overcrowding as the first day of the trial got underway in Court 1 of Southwark Crown Court in London.
The trial centres around what the bank disclosed in its public statements in 2008 — the prospectuses for the capital raisings and subscription agreement documents published June and October that year. Those prospectuses outlined fees and commissions paid to investors in return for backing the bank.
Qatar’s sovereign wealth fund and a company connected to the Middle Eastern country’s ruling family invested £4.4bn ($5.7bn) in Barclays across two capital raises in 2008, as part of a total of £11.8bn raised by the bank. In return, the Qataris were paid £322m in fees, equivalent to 3.25% of their investment.
This was over double the commission paid to other shareholders who invested, Edward Brown QC, the lawyer for the SFO, told the jury on Wednesday.
Brown said that Barclays’ executives conspired to cover up the higher fees by using advisory contracts. Brown said these Advisory Service Agreements (ASAs) were a “smokescreen” to cover up the true nature of the payments.
“The Prosecution’s case, therefore, is that the statements made in the Prospectuses and other documents about the extent of the fees and commissions payable to the Qataris were untrue because they did not reveal the fact that the ASAs were payments being made to the Qataris in return for their investment,” Brown told the jury.
The text of the first of two service agreements was read to the jury. It said that Barclays and Qatar has “discussed the type and scale of services you will provide to deliver value in exchange for this fee.”
“The conspirators all knew it to be a lie,” he said. “Each knew that the agreements were commission payments, fees for investing, say the Crown, and none of them believed that the ASAs were genuine agreements for valuable services.”
‘Plainly a lie’
Brown said that Barclays’ executives at the time were “under sometimes extreme pressure to raise further capital.” Varley and the board wanted to avoid a government bailout, which would have placed “itself under greater Government control and scrutiny.”
“The Qatari money was essential,” Brown said. “Those within the bank at that time commented that without it the consequences would be dire – for the bank and personally.”
The Qataris “drove a hard bargain,” and the Barclays’ executives realised they would have to pay above market fees for the investment, the court was told by the prosecution.
The prosecution alleged that Barclays’ executives didn’t want to publish true figure because other investors would demand the same commission. It could also undermine market confidence in the bank if investors realised they were having to pay such high commission to access capital, Brown argued.
“If Barclays was seen to be so weak and vulnerable that it needed to pay substantial fees to investors, then a private capital raising may not succeed at all because other investors may have become concerned about that perceived weakness,” Brown said in his opening statement.
Brown said that public disclosures made regarding the Qatari investments were “plainly a lie.”
The case is expected to last up to six months and continues at Southwark Crown Court.