(Bloomberg) -- Barclays Plc must face a proposed class action by shareholders over the bank’s inadvertent sale of $17.7 billion in unregistered securities, a judge in New York ruled.

Investors led by the 34,000-member Boston Retirement System sued in 2022, after the UK-based bank disclosed that, due to internal control failures, it had exceeded a regulatory cap on securities registrations. That meant that billions of dollars in securities Barclays issued in previous years were not registered with the Securities and Exchange Commission.

US District Judge Katherine Polk Failla on Friday ruled that shareholders had sufficiently alleged Barclays misled them about its failure to set up internal controls. She also said they could go forward with claims that executives had been reckless in reassuring investors about the bank’s compliance with securities laws.

Barclays didn’t immediately respond to an email seeking comment. 

The bank agreed in 2022 to pay $361 million to resolve civil claims by the SEC over the matter. The shareholders, who are seeking to represent all buyers of Barclays’ American Depositary Receipts from February 2021 to February 2023, claim the matter resulted in a drop in the stock price.

Wall Street banks often use “well-known seasoned issuer” shelf registrations with the SEC that make securities offerings less onerous and time consuming. But Barclays lost such privileges after an earlier settlement with the SEC in 2017 and was required to quantify anticipated offerings and pay registration fees.

The ruling means the investors’ claims are strong enough to allow both sides to go forward with pre-trial evidence gathering, a process that can take months or even years. Failla did remove from the case claims over statements made after Barclays’ disclosure of the error, calling them a “stretch too far.”

The case is In re Barclays Plc Securities Litigation, 22-cv-8172, US District Court, Southern District of New York (Manhattan).

©2024 Bloomberg L.P.