Barclays must face a proposed class action lawsuit brought by shareholders who have accused the bank of securities fraud, a US judge has ruled.

The bank in March of 2022 admitted that it had sold $15.2 billion more structured and exchange-traded notes than the $20.8 billion permitted by US regulators over a five year period. The oversold amount was subsequently increased by $2.4 billion in July of the same year.

Shareholders would go on to launch a lawsuit in September which accused Barclays of making "materially false and misleading" assurances in its annual reports on the effectiveness of its internal controls over financial reporting.

Some 18 months later, US District Judge Katherine Polk Failla in Manhattan in a 57-page decision has ruled that the lawsuit adequately alleges that the bank’s failure to disclose the absence of internal controls to catch the debt sales was a material omission of fact.

The judge also said that shareholders will be allowed to prove that the bank and officials including former boss Jes Staley were “actionably reckless” in their roles in the blunder which executives had characterised as a “self-inflicted” problem that would not have required “rocket science” to avoid.

In the decision, Judge Failla noted that shareholders could sue Barclays for making statements such as that it was "committed to operating within a strong system of internal control". She said that such statements are typically not permissible in a lawsuit, but made an exception in this case as Barclays’ system for tracking the debt sales "did not just underperform – it did not exist."

The judge ruled against the shareholders in their pursuit of a securities fraud claim over statements that Barclays made after the overissuances were discovered.

---