Hiroko Masuike/The New York TimesEric T. Schneiderman, New York’s attorney general, said Barclays had misled investors.
Updated, 8:25 p.m. | The top law enforcer in New York State, Eric T. Schneiderman, filed civil fraud charges on Wednesday against Barclays over its private stock trading platform, contending that it favored high-frequency traders over other investors.
Mr. Schneiderman, the state attorney general, accused Barclays of falsely representing the concentration of high-frequency traders in its private trading platform, known as a dark pool. He also claimed the British bank had falsified marketing materials and misrepresented a service that purported to protect investors from predatory trading behavior.
The lawsuit, which was filed in New York State Supreme Court, seeks to compel Barclays to forfeit the profits gained through its actions and pay an unspecified amount of damages.
“The lawsuit filed today charges that Barclays grew its dark pool into one of the largest in the United States by telling investors they were diving into safe waters,” Mr. Schneiderman told reporters on Wednesday. “In fact, Barclays’ dark pool was full of predators who were there at Barclays’ invitation.”
Tina Fineberg for The New York TimesThe Barclays building in New York.
A spokesman for Barclays, Mark Lane, said in a statement that the bank was cooperating with the attorney general and the Securities and Exchange Commission.
“The integrity of the markets is a top priority of Barclays,” Mr. Lane said. “We take these allegations very seriously.”
Dark pools, which allow investors to submit buy and sell orders without alerting the broader market to their trading activity, have grown in popularity among big investors looking to execute large orders of stock. Such private trading venues, many of which are operated by banks like Goldman Sachs and Credit Suisse, accounted for 14.8 percent of the stock trading volume in the United States in April, according to Rosenblatt Securities.
The dark pool run by Barclays, Barclays LX, was part of its acquisition of certain operations of Lehman Brothers in 2008.
Relying on former Barclays employees, as well as documents obtained from the bank, the lawsuit claims that the bank failed to protect investors in its dark pool from trading behavior that it described as “predatory” or “toxic.”
One service claimed to be able to “restrict” high-frequency trading firms “interacting with our clients,” according to the lawsuit. But Barclays did not apply the monitoring service to the bulk of orders in its dark pool and altered the profiles of certain traders, the lawsuit says, citing an internal document that said the service “may rely on inaccurate information.”
The lawsuit also cites emails in which employees appeared to discuss inaccuracies in marketing materials. In one exchange in 2012, in response to a draft version of analysis to be used in marketing, one employee raised concerns that a major high-frequency trader was not included in the data about the dark pool.
In the ensuing email conversation, a vice president said: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”
Mr. Schneiderman also took aim at the bank’s role as a brokerage firm. While Barclays claimed it routed client orders to trading venues that offered the best terms, it actually sent almost all orders to its own dark pool first, according to the suit.
In a private presentation to a high-frequency trading firm, the lawsuit says, Barclays revealed that about 90 percent of all orders “are first directed into the dark pool.”
A version of this article appears in print on 06/26/2014, on page B6 of the NewYork edition with the headline: New York Accuses Barclays of Fraud in Private Stock Trading Platform.
Updated, 8:25 p.m. | The top law enforcer in New York State, Eric T. Schneiderman, filed civil fraud charges on Wednesday against Barclays over its private stock trading platform, contending that it favored high-frequency traders over other investors.
Mr. Schneiderman, the state attorney general, accused Barclays of falsely representing the concentration of high-frequency traders in its private trading platform, known as a dark pool. He also claimed the British bank had falsified marketing materials and misrepresented a service that purported to protect investors from predatory trading behavior.
The lawsuit, which was filed in New York State Supreme Court, seeks to compel Barclays to forfeit the profits gained through its actions and pay an unspecified amount of damages.
“The lawsuit filed today charges that Barclays grew its dark pool into one of the largest in the United States by telling investors they were diving into safe waters,” Mr. Schneiderman told reporters on Wednesday. “In fact, Barclays’ dark pool was full of predators who were there at Barclays’ invitation.”
Tina Fineberg for The New York TimesThe Barclays building in New York.
A spokesman for Barclays, Mark Lane, said in a statement that the bank was cooperating with the attorney general and the Securities and Exchange Commission.
“The integrity of the markets is a top priority of Barclays,” Mr. Lane said. “We take these allegations very seriously.”
Dark pools, which allow investors to submit buy and sell orders without alerting the broader market to their trading activity, have grown in popularity among big investors looking to execute large orders of stock. Such private trading venues, many of which are operated by banks like Goldman Sachs and Credit Suisse, accounted for 14.8 percent of the stock trading volume in the United States in April, according to Rosenblatt Securities.
The dark pool run by Barclays, Barclays LX, was part of its acquisition of certain operations of Lehman Brothers in 2008.
Relying on former Barclays employees, as well as documents obtained from the bank, the lawsuit claims that the bank failed to protect investors in its dark pool from trading behavior that it described as “predatory” or “toxic.”
One service claimed to be able to “restrict” high-frequency trading firms “interacting with our clients,” according to the lawsuit. But Barclays did not apply the monitoring service to the bulk of orders in its dark pool and altered the profiles of certain traders, the lawsuit says, citing an internal document that said the service “may rely on inaccurate information.”
The lawsuit also cites emails in which employees appeared to discuss inaccuracies in marketing materials. In one exchange in 2012, in response to a draft version of analysis to be used in marketing, one employee raised concerns that a major high-frequency trader was not included in the data about the dark pool.
In the ensuing email conversation, a vice president said: “I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.”
Mr. Schneiderman also took aim at the bank’s role as a brokerage firm. While Barclays claimed it routed client orders to trading venues that offered the best terms, it actually sent almost all orders to its own dark pool first, according to the suit.
In a private presentation to a high-frequency trading firm, the lawsuit says, Barclays revealed that about 90 percent of all orders “are first directed into the dark pool.”
A version of this article appears in print on 06/26/2014, on page B6 of the NewYork edition with the headline: New York Accuses Barclays of Fraud in Private Stock Trading Platform.
