NEW YORK (Reuters) - New York State Attorney General Eric Schneiderman on Wednesday moved to expand his lawsuit accusing Barclays Plc of fraud for having deceived clients and investors about how it operated a private U.S. trading venue known as a “dark pool.”
The attorney general said new evidence shows that several top executives knew how the British bank falsely led people to believe that its electronic trading services offered protection from “predatory,” “toxic” and “aggressive” trading practices.
Schneiderman’s office also said Barclays reneged on its public promises to cooperate with his probe, including by resisting subpoenas for testimony by its two top equities electronic trading executives, William White and David Johnsen.
“Investors and clients should see what’s truly going on,” an official in Schneiderman’s office said on Wednesday.
Barclays had sought to dismiss Schneiderman’s original complaint filed last June 25, saying there was no showing that investors were harmed.
Wednesday’s filing “repackages the same flawed arguments,” Barclays said in a statement. “While we continue to seek to cooperate with the New York Attorney General in this matter, we will continue to defend vigorously against these allegations.”
Dark pools were designed to quietly trade shares before investors in the broader market could learn about and bet against the trades. They can be cheaper to use than exchanges.
Schneiderman claims that Barclays used its dark pool to give an unfair edge to high-frequency traders, boosting revenue and bonuses. He said this violated the state’s Martin Act, a powerful anti-fraud law.
A hearing on whether to let Schneiderman pursue his amended complaint is scheduled for Feb. 11 in the New York State Supreme Court in Manhattan.
The lawsuit is among the highest-profile cases as regulators probe the fairness of high-speed, automated trading practices and alternative trading systems.
In his amended complaint, Schneiderman said Barclays falsely told clients from 2012 to 2014 that its algorithms gave no advantage to particular trading venues or client orders, despite having reprogrammed those algorithms to favor the dark pool.
He also said Barclays “did not police” that pool, telling investors that 6 percent to 9 percent of trading activity was “aggressive” when it knew the amount was closer to 25 percent to 30 percent.
Schneiderman also said Barclays let high-frequency trading firm GTS Securities LLC trade millions of shares a day in the dark pool despite an alleged June 2012 ban.
A GTS spokesman did not respond to a request for comment.
The case is Schneiderman v. Barclays Capital Inc et al, New York State Supreme Court, New York County, No. 451391/2014.
Reporting by Jonathan Stempel in New York; Additional reporting by Karen Freifeld and Herb Lash; Editing by Lisa Shumaker, Bernard Orr