A major division of British bank Barclays misled to investors about conditions at a special private securities trading venue it operates in New York, according to an indictment filed on Wednesday New York’s attorney general.
The indictment filed by Eric Schneiderman says the case is about “fraud and deceit by one of the world’s largest banks.” The case concerns Barclays’ Equities Electronic Trading division where the bank operates a private trading venue where investors can trade stocks mostly anonymously known as a “dark pool.” Dark pools were created for institutional investors so they could trade large blocks of shares in secret and thereby minimize their impact on prices so they can get a better deal on their trades.
The indictment alleges that beginning in 2011 Barclays embarked on a business strategy to increase the market share of its dark pool with the goal of making it the largest in the United States.
“Barclays accomplished this through a series of false statements to clients and the investing public about how, and for whose benefit, Barclays operates its dark pool,” the indictment says.
It says while Barclays stated that it implemented special safeguards to protect clients from aggressive or predatory high-frequency traders, it did the opposite.
“Barclays has operated its dark pool to favor high-frequency traders,” the complaint says. “Barclays has actively sought to attract such traders to its dark pool, and it has given them advantages over others trading in the pool.”
The lawsuit says institutional investors were led to believe they were safe from predators in a trading venue where aggressive trading strategies were encouraged.
Mark Lane, a spokesman for Barclays responded to the allegations in a statement to Bloomberg news.
“We take these allegations very seriously,” Lane said. “Barclays has been cooperating with the New York attorney general and the SEC (US Securities and Exchange Commission) and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.” Schneiderman did not specify how much money the lawsuit will seek from the bank in penalties.