Barclays Capital Inc has agreed to pay a $150,000 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).
In July 2021, Barclays served as underwriter for an initial public offering for Company A, which raised approximately $700 million. As stated in the offering documents, Company A used the proceeds from the offering to purchase LLC units from Company B, which in turn used the proceeds from the sale of the LLC units to pay off an outstanding debt.
An affiliate of Barclays served as a lender to Company B and received approximately $150 million of Company B’s repayment, using primarily the proceeds of the offering.
Using approximately 20% of the offering proceeds to repay its subsidiary was a conflict of interest that required Barclays to satisfy FINRA Rule 5121(a)(1) or (a)(2) if it were to participate in the offering.
Barclays did not satisfy FINRA Rule 5121(a)(1) because the lead underwriter for the offering was also conflicted and the securities offered did not have an investment grade rating and did not have a good public market at the time of the offering. Barclays did not satisfy FINRA Rule 5121(a)(2) because a QIU did not participate in the preparation of the registration statement and prospectus.
Therefore, Barclays violated FINRA Rules 5121 and 2010.
In addition to the $150,000 fine, Barclays agreed to a censure.