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(Adds details from decision, Schneiderman comment, background)
By Jonathan Stempel
NEW YORK, Feb 13 (Reuters) - A New York judge on Fridayrejected Barclays Plc's effort to dismiss stateAttorney General Eric Schneiderman's lawsuit accusing it ofdefrauding clients about high-speed trading in its private "darkpool" trading platform.
Justice Shirley Werner Kornreich of the State Supreme Courtin Manhattan said it was premature to dismiss Schneiderman'sclaim under the state's Martin Act, a powerful anti-fraud law.
"Traders are entitled to rely on material representationsbanks make about their dark pools," the judge wrote. "If suchrepresentations are untrue, the integrity of dark pools will becompromised and investor confidence in them will be shaken."
But the judge said Schneiderman still must show enoughspecifics about Barclays' dark pool to demonstrate the bank liedto clients and investors.
Quoting from Schneiderman's complaint, Kornreich also saidshe would not transform the case into a battle over the legalityof high-speed trading.
"Investors in the dark pool are highly sophisticated and,hence, no liability will be found simply on the basis ofmeaningless words, such as 'aggressive', 'predatory', and'toxic'," she wrote. "This court is not influenced, nor is itmoved, by the NYAG's public policy arguments."
Kornreich said she will rule later on whether Schneidermanraised a valid Martin Act claim, and that Barclays' argumentsthat the law should not apply were "not entirely unreasonable."
The judge also dismissed a claim that Schneiderman broughtunder a separate state law.
Barclays had no immediate comment.
Liz DeBold, a spokeswoman for Schneiderman, said: "We arepleased the court affirmed our ability to pursue a claim againstBarclays."
Dark pools were designed to let people quietly trade sharesbefore investors in the broader market could learn about and betagainst their trades.
But in his lawsuit, Schneiderman said Barclays falsely toldclients from 2012 to 2014 that its algorithms gave no advantageto particular trading venues or client orders, despite havingreprogrammed those algorithms to favor its dark pool.
He also said Barclays falsely downplayed the percentage ofdark pool trading that was "aggressive," and that electronictrading chief William White and head of product developmentDavid Johnsen directly oversaw this activity.
Schneiderman's lawsuit is among the highest-profile cases asregulators probe high-speed trading, which came under scrutinyin Michael Lewis' bestseller "Flash Boys: A Wall Street Revolt."
The case is Schneiderman v. Barclays Capital Inc et al, NewYork State Supreme Court, New York County, No. 451391/2014. (Reporting by Jonathan Stempel in New York; Editing by MeredithMazzilli and Chris Reese)
