On 22 January 2025, the United States Securities and Exchange Commission (US SEC) published a Notice of Proposed Plan of Distribution and Opportunity for Comment concerning a Fair Fund created from a $200 million civil penalty imposed on Barclays PLC and Barclays Bank PLC. The proposed plan seeks to compensate investors who traded in Barclays American Depository Receipts (ADRs) on the New York Stock Exchange (NYSE) and ordinary shares on the London Stock Exchange (LSE) during the relevant period.
The proposal, under the Fair Fund provisions of Section 308(a) of the United States Sarbanes-Oxley Act of 2002 (SOX), represents a novel approach as it seeks to extend compensation to investors who purchased securities of a foreign issuer on a foreign exchange. This proposal has raised legal and policy concerns, as outlined by Commissioner Hester M. Peirce, who has questioned its consistency with statutory limitations and its broader implications for the US SEC’s mission.
The US SEC’s proposed plan stems from a settled administrative proceeding against Barclays PLC and Barclays Bank PLC, in which a $200 million penalty was imposed for violations of US securities laws. Under the proposed distribution plan, the Fair Fund aims to compensate investors for recognised losses incurred from trading Barclays ADRs on the NYSE and Barclays ordinary shares on the LSE during the relevant period. The inclusion of foreign investors who traded on the LSE sets this plan apart from typical Fair Fund distributions.
She has expressed concerns about whether the statutory framework of SOX 308(a) supports compensating foreign investors trading on non-US exchanges and whether this use of Fair Fund resources aligns with the US SEC’s mission to protect US investors and markets.
The proposed plan aims to provide a unified claims process for compensating investors harmed by Barclays’ misconduct, regardless of whether they traded on US or foreign exchanges. Commissioner Peirce has questioned the legal justification for extending compensation to foreign transactions, citing Supreme Court precedents that emphasise the limited extraterritorial application of US laws.
From a policy perspective, she argued that the US SEC’s role is to safeguard the fairness and efficiency of US capital markets and to protect investors trading under its jurisdiction. Compensating foreign investors who chose to trade on the LSE; outside the regulatory reach of the US SEC; may conflict with this mission. She pointed out that funds not distributed through the Fair Fund are typically returned to the US Treasury, meaning that extending compensation to foreign investors effectively diverts taxpayer resources to foreign entities without clear congressional authorisation.
The $200 million penalty was imposed in a settled administrative proceeding following findings of misconduct by Barclays PLC and Barclays Bank PLC. In accordance with SOX 308(a), the Fair Fund was established to compensate investors harmed by these violations.
The proposed plan, detailed in a notice released on 22 January 2025, specifies a single claims process for investors trading ADRs on the NYSE and ordinary shares on the LSE. The “Relevant Period” and “Recognised Losses” criteria outlined in the plan are designed to ensure fairness across the investor groups, regardless of the exchange on which they traded. However, Commissioner Peirce has raised concerns that this approach may overstep statutory boundaries by compensating foreign investors under US law.
The US SEC has invited public comments on the proposed plan, particularly on its interpretation of the presumption against extraterritoriality and its policy implications. Commissioner Peirce has specifically called for feedback on whether the plan aligns with the text of SOX 308(a) and whether it furthers the US SEC’s mission to promote fair and efficient markets.
The notice opens the door for stakeholders, including investors, legal experts, and market participants, to contribute their views. The timeline for finalising the plan will depend on the feedback received, with the US SEC likely to revise or refine its approach based on public input.
(Source: https://www.sec.gov/newsroom/press-releases/2025-28)
