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By Karen Freifeld and Herbert Lash
NEW YORK, Dec 18 (Reuters) - The judge overseeing New Yorkstate's lawsuit accusing Barclays of fraud in itsalternative trading system on Thursday raised questions aboutthe case, putting the attorney general's counsel on thedefensive.
Justice Shirley Kornreich of New York Supreme Court inManhattan reserved judgment on whether she would dismiss thelawsuit before trial, as Barclays has requested. She did notindicate when she would rule.
New York Attorney General Eric Schneiderman sued Barclays inJune, accusing the bank of giving an unfair edge tohigh-frequency traders in its alternative trading system, ordark pool, while claiming to protect other clients from theirpredatory actions.
Dark pools are private electronic trading venues thatoperate separately from public exchanges; they allowinstitutional investors and traders to execute transactions oflarge blocks of securities anonymously.
Barclays claims Schneiderman's case has "fatal flaws." Inits motion to dismiss the lawsuit, Barclays said the complaintfailed to identify any fraud and did not establish materialmisstatements, identify victims or actual harm.
In court, the judge noted that the complaint lacked detailsregarding any contracts or parties harmed.
"We are not here...representing particular clients," saidChad Johnson, chief of the New York attorney general'sInvestment Protection Bureau.
"Which bothers me," Kornreich said. "This is a fraud claimand there are absolutely no specifics in this complaint."
Kornreich said she found the complaint "confusing" and"conflated."
She also noted that there are private lawsuits over thetrading platform. Barclays is being sued by investors in federalcourt who claim the bank misrepresented the platform as a safehaven from predatory high-frequency traders.
"That is an entirely different world," Johnson said. "Webring matters all the time that are parallel to private actionsfor law enforcement reasons."
Attorney Jeffrey Scott, who represents Barclays, said thestate has no basis for the misrepresentation claim.
"We do not think they can show...that any investors actuallyrelied on what Barclays was saying to make an investmentdecision," Scott argued.
The bank says any purported wrongdoing falls outside thescope of the Martin Act, New York state's powerful securitiesfraud statute.
Johnson called that argument off-base. "This couldn't be amore classic Martin Act case," he said.
Kornreich granted that the statute is "very broad."
The case is People v Barclays Capital Inc., New York StateSupreme Court, New York County, NO. 451391/2014 (Reporting by Karen Freifeld; Editing by Leslie Adler)
