In SEC v. Barclays Bank PLC and Steven J. Landzberg, the Securities and Exchange Commission brought an enforcement action that cast further doubt upon the enforceability of “big boy” letters used in securities transactions between sophisticated parties. “Big boy” letters have generally been viewed and used as a mechanism to mitigate the risks of trading securities while in possession of material nonpublic information.


The federal securities laws generally prohibit trading in securities in breach of a fiduciary or other similar relationship of trust and confidence while in possession of material nonpublic information about the security—so-called “insider trading.” Frequently, however, parties have been willing to proceed with such trades by entering into “big boy” letters that accompany the purchase and sale documentation in which they agree not to bring suit over the non-disclosure of material nonpublic information relevant to the security. These letters generally include, among other things, an acknowledgement that one or both parties may have material nonpublic information and that neither party is relying upon the other to disclose such information. The parties usually also agree to waive any claims that either party may have against the other stemming from the non-disclosure of the material nonpublic information.


In the Barclays complaint, the SEC alleged that Barclays Bank and Steven Landzberg illegally traded millions of dollars of bond securities over a period of 18 months while in possession of material nonpublic information received from six creditors committees as a result of Landzberg having been employed as the head proprietary trader of Barclays’ U.S. distressed debt desk and through his simultaneously serving as a representative on the committees. According to the complaint, Barclays and Landzberg misappropriated material nonpublic information obtained by virtue of their positions on these creditors committees and did not disclose their trading to the unsecured creditors committees, issuers or others that provided such information. Additionally, Landzberg and Barclays failed to disclose any material nonpublic information to their bond trading counterparties although they did, in some instances, use “big boy” letters to advise such counterparties that Barclays may have material nonpublic information in its possession. As a result, both Barclays and Landzberg consented to the entry of final judgments which permanently enjoined them from violating Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Furthermore, Barclays agreed to pay a total of $10.94 million to settle the charges and Landzberg agreed to pay a $750,000 civil penalty. Landzberg further consented to being permanently enjoined from participation in any creditors committee of any federal bankruptcy proceeding involving an issuer of securities.

Since Barclays and Landzberg ultimately settled the action and consented to statutory injunctions without admitting or denying the SEC charges, the issues surrounding Barclays’ use of “big boy” letters will not be addressed by the judiciary. In addition, the facts of this case were particularly egregious. Nevertheless, the SEC’s focus on the use of “big boy” letters in trades by Barclays involving material nonpublic information appears to signify that “big boy” letters will not necessarily protect banks or their traders against government fraud enforcement actions under Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC emphasized this point in its litigation release which announced the settlement.


Although the SEC issued a warning regarding reliance upon “big boy” letters in the Barclays settlement, it disclosed scant detail as to how they were in fact used in these instances and the protections that the parties were attempting to achieve. Consequently, it is difficult to draw detailed conclusions from the Barclays settlement regarding the SEC’s views on the use of such letters.

Whether the SEC will continue to pursue such actions and, if so, under which circumstances is unclear. What is known is that, when considered together with pre-existing uncertainty surrounding their enforceability, parties would be well advised to carefully examine their use of “big boy” letters and the legal protections they are intending to obtain as a result of such use.