New York Attorney General Eric Schneiderman has accused Barclays of misleading investors about the safety of its dark pool, a trading venue operated outside of public exchanges.
Schneiderman, in a civil fraud complaint filed Wednesday in Manhattan Supreme Court, alleged that Barclays falsely told investors that it had safeguards in place against predatory, high-frequency traders, when it actually favored such traders.
Schneiderman accused Barclays of marketing a service it called “Liquidity Profiling” that claimed to track all the trades in its dark pool and identify aggressive high-frequency traders. But the complaint alleges it failed to regularly update information about traders, and sometimes overrode its own system for rating traders in order to assign safe ratings to traders that were actually toxic.
The complaint seeks injunctive and monetary relief but does not name a dollar amount.
“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” Schneiderman said in a press release. “Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays’ dark pool was full of predators—there at Barclays’ invitation.”
The complaint contained a cause of action for securities fraud under the Martin Act and one for persistent fraud and illegality under Executive Law §63(12).
“We take these allegations very seriously,” Barclay’s spokesman Mark Lane said in an email. “Barclays has been cooperating with the New York Attorney General and the SEC, and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”
Chad Johnson, chief of the AG’s office’s investor protection bureau, said he believed the complaint was the first action filed over a bank’s operation of its dark pool.
There are dozens of dark pools in the U.S., many operated by banks.