By Jonathan Stempel

NEW YORK (Reuters) -Barclays and former Chief Executive Jes Staley must face a lawsuit in Los Angeles claiming they defrauded shareholders about Staley's close ties to the disgraced late financier Jeffrey Epstein.

U.S. District Judge Maame Ewusi-Mensah Frimpong ruled on Wednesday that holders of Barclays' American Depositary Receipts plausibly alleged the defendants intended to mislead them to protect the bank's reputation and prop up its stock price.

Investors said the fraud ran from July 22, 2019, about two weeks after Epstein's arrest, through October 12, 2023, and continued even after Barclays learned about an email cache showing Staley viewed Epstein as "family." 

They cited public statements suggesting the relationship was purely professional, and that an inquiry by Britain's Financial Conduct Authority concerned mainly whether Staley was aware of Epstein's alleged sex crimes, not whether he witnessed some.

Frimpong narrowed two claims against a third defendant, Barclays Group Chairman Nigel Higgins.

Pension funds in New York and St. Louis lead the proposed class action, which seeks unspecified damages.

Staley's lawyers did not immediately respond to requests for comment on Thursday. Lawyers for Barclays and Higgins did not immediately respond to similar requests. The shareholders' lawyers also did not immediately respond to such requests.

Epstein was arrested on July 6, 2019, on federal sex trafficking charges, and killed himself in a Manhattan jail cell five weeks later.

Staley was Barclays' chief executive from 2015 to 2021. He was previously a top banker and JPMorgan Chase, where he also had a close relationship with Epstein.

Staley lost his appeal in London on Thursday against a proposed financial industry ban announced by the FCA in 2023 for misleading the regulator about Epstein.

Staley maintained that he didn't know about Epstein's "monstrous activities" and did not remember embarrassing emails. He said he was disappointed with Thursday's decision.

The U.S. shareholder case is Merritt v Barclays Plc et al, U.S. District Court, Central District of California, No. 23-09217.

(Reporting by Jonathan Stempel in New York; Editing by Mark Porter)