Barclays has squared up for a fight with the New York Attorney General, filing a motion to dismiss his accusation that the bank misled clients about the activities of “predatory” high-frequency traders in its American “dark pool” share exchange.
In a strongly worded legal filing, Barclays said Eric Schneiderman “fails to identify any fraud” in his allegation while “establishing no material mis-statements, no identified victims and no actual harm”.
Within a week and a half of the filing of the claim, volumes through Barclays’ dark pool – a share exchange that in theory allows big investors to buy or sell large chunks of companies without other traders seeing what they are up to – had plummeted 80 per cent. That dropped the bank from second to 12th position in the market.
Mr Schneiderman, up for re-election this year, had claimed that Barclays misled clients in marketing material into believing they would be protected from high-frequency traders. Critics say their activities are damaging to pension funds and other investors.
But Barclays said its clients were large and sophisticated investors responsible for millions or even billions of dollars, who bought and sold across a range of dark pools. It said they were perfectly capable of monitoring performance and picking up problems if they occurred.
The bank also claimed that Mr Schneiderman’s complaint relied on “clear and substantial factual errors”, “snippets of marking brochures” and “brief quotes in news articles”. And it argued that Mr Schneiderman had “over-reached” himself through his use of the Martin Act to prosecute Barclays. This, it said, limited actions for fraud to the purchase or sale of securities such as shares. The operation of a dark pool trading facility should therefore be excluded, with oversight a matter for the US Securities and Exchange Commission rather than American states.
Barclays also questioned the use of quotes from former employees, which cast a dim light on the operation of the bank’s dark pool, saying courts should be “wary of anonymous self-interested sources”.
The bank said it was prohibited in a motion to dismiss from directly commenting on the truth of many of the allegations, but pledged that it would do so when the opportunity presented itself.
While its decision to fight back aggressively caught some by surprise, Barclays has proved willing to take on the US authorities in the past. It is currently battling with the Federal Energy Regulatory Commission, which wants the bank to pay $490m (£290m) in fines and disgorgement for allegedly rigging California electricity prices, a claim Barclays hotly denies.
Mr Schneiderman’s office, however, gave the motion to dismiss his action short shrift. A spokesman said: “The complaint filed last month by Attorney General Schneiderman clearly details the allegations that Barclays engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own 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.”