LONDON (Alliance News) - Barclays PLC Thursday issued a tough response to allegations of fraud in connection with its dark pool, calling for the dismissal of the lawsuit brought against it by New York State Attorney General Eric Schneiderman.
Barclays' response comes a month after Schneiderman accused the bank of operating its dark pool alternative trading platform, LX, to favour high-frequency traders at the expense of clients and other investors, despite presenting the trading platform as having special safeguards to protect against "predatory" or "toxic" traders.
The complaint alleged that Barclays falsified marketing material purporting to show the extent and type of high frequency trading in its dark pool. Earlier Thursday, Alliance News reported that a new document posted in the investment banking section of Barclays PLC's website has confirmed that the number of clients using its dark pool has declined since the complaint was filed.
"Barclays works closely with its regulators in all jurisdictions and will continue to cooperate with the New York Attorney General. However, we do not believe that this suit is justified, and we have a duty to our shareholders, clients and staff to defend our position," Barclays said in a statement.
In a legal filing made to the the Supreme Court of the State of New York, Barclays said that the New York State Attorney General's complaint "fails to identify any fraud" and primarily relies on "snippets of marketing brochures and brief quotes in news articles." Furthermore, Barclays said that the complaint is based on "clear and substantial factual errors" and said that it will introduce evidence "demonstrating how far off base" the allegations are if the litigation proceeds.
Barclays said that Schneiderman does not have the authority to bring the lawsuit, arguing that "in seeking to extend its regulatory authority to trading platforms, the New York Attorney General ignores that the plain text of the Martin Act - on which the NYAG?s claims are predicated - is limited to actions for fraud in the purchase or sale of ?securities,? and does not extend to all actions related to finance." Moreoever, Barclays said that using the Martin Act to cover alternative trading platforms could create "unnecessary conflicts" with federal law, as to this point only the US Securities and Exchange Commission has regulated such platforms.
The bank also pointed out that LX users are highly sophisticated traders and asset managers responsible for investing millions or billions of dollars of assets, who tend to use and have access to more detailed information than is commonly disclosed in marketing flyers or news quotes. Furthermore, Barclays said that the marketing materials used by the Attorney General in forming the complaint "made clear that high-frequency traders were a substantial part of LX."
In addition, Barclays said that the complaint "wrongly seeks damages and restitution for the People of the State of New York without alleging that the People - let alone any LX clients - actually suffered any harm." The bank said that under New York law litigants bringing Martin Act claims must allege damages from the defendants' alleged misrepresentations.
According to a statement from the Office of the Attorney General, the complaint filed last month by Schneiderman "clearly details" the allegations that Barclays engaged in a pattern of fraud and deceit, lying to investors in order to grow its dark pool.
"The Attorney General is committed to ensuring there is one set of rules for everyone in the markets, and will crack down on abuses wherever he sees them. We are confident that a judge will reject this motion and allow us to prove these disturbing allegations in court," the statement, issued by Damien LaVera, Communications Director for Schneiderman, said.
Barclays shares were Thursday quoted up 1.5% at 214.02 pence.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Barclays (BARC)