Statement From The Office Of The Attorney General On Lawsuit Against Barclays

NEW YORK – The following statement was issued today by Damien LaVera, Communications Director for Attorney General Eric T. Schneiderman:

“The complaint filed last month by Attorney General Schneiderman clearly details the allegations that Barclays engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own dark pool. The Attorney General is committed to ensuring there is one set of rules for everyone in the markets, and will crack down on abuses wherever he sees them. We are confident that a judge will reject this motion and allow us to prove these disturbing allegations in Court.” 

Attorney General Schneiderman’s complaint, filed last month, alleges that Barclays falsified marketing material purporting to show the extent and type of high frequency trading in its dark pool. For example, Barclays removed from a marketing document intended for institutional investors references to the dark pool’s then-largest participant – a high frequency trading firm Barclays knew engaged in predatory behavior in the dark pool.  In response, one employee stated: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”

Barclays heavily promoted a service called Liquidity Profiling, which the bank claimed was a “surveillance” system that tracked every trade in Barclays’ dark pool in order to identify predatory traders, rate them based on objective characteristics of their trading behavior, and hold them accountable for engaging in predatory practices.

Contrary to those promises, the complaint alleges that:

  • Barclays has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be;
     
  • Barclays did not regularly update the ratings of high-frequency trading firms monitored by Liquidity Profiling;
     
  • Barclays “overrode” certain Liquidity Profiling ratings – including for some of its own internal trading desks that engaged in high-frequency trading – by assigning safe ratings to traders that were determined to be toxic.

The complaint further alleges that, contrary to Barclays’ representations that it protects clients from aggressive or predatory high-frequency trading in its dark pool, Barclays in fact operates its dark pool to favor high-frequency traders and has actively sought to attract them by giving them systemic advantages over others trading in the pool. As alleged in the complaint, this included:

  • Falsely underrepresenting the concentration of aggressive high-frequency trading in its dark pool;
     
  • Misrepresenting its Liquidity Profiling service – which Barclays claimed protected investors from predatory behavior – by failing to provide many of the benefits marketed with the service; and
     
  • Claiming that Barclays does not favor its own dark pool when routing client orders to trading venues, while in fact doing just that. As alleged in our Complaint, Barclays falsified an analysis of how it routed a major client’s orders.

A copy of the complaint can be viewed here.

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