Barclays fails to win dismissal of NY 'dark pool' lawsuit

Fri Feb 13, 2015 5:15pm EST
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By Jonathan Stempel

NEW YORK (Reuters) - A New York judge on Friday rejected Barclays Plc's (BARC.L: Quote) effort to dismiss state Attorney General Eric Schneiderman's lawsuit accusing it of defrauding clients about high-speed trading in its private "dark pool" trading platform.

Justice Shirley Werner Kornreich of the State Supreme Court in Manhattan said it was premature to dismiss Schneiderman's claim under the state's Martin Act, a powerful anti-fraud law.

"Traders are entitled to rely on material representations banks make about their dark pools," the judge wrote. "If such representations are untrue, the integrity of dark pools will be compromised and investor confidence in them will be shaken."

But the judge said Schneiderman still must show enough specifics about Barclays' dark pool to demonstrate the bank lied to clients and investors.

Quoting from Schneiderman's complaint, Kornreich also said she would not transform the case into a battle over the legality of high-speed trading.

"Investors in the dark pool are highly sophisticated and, hence, no liability will be found simply on the basis of meaningless words, such as 'aggressive', 'predatory', and 'toxic'," she wrote. "This court is not influenced, nor is it moved, by the NYAG's public policy arguments."

Kornreich said she will rule later on whether Schneiderman raised a valid Martin Act claim, and that Barclays' arguments that the law should not apply were "not entirely unreasonable."

The judge also dismissed a claim that Schneiderman brought under a separate state law.   Continued...

The Barclays logo is brightly lit on their building in Times Square, Manhattan, New York in the early hours of January 18, 2015. REUTERS/Carlo Allegri