New York State Attorney General Eric Schneiderman said earlier today that he wants to expand his lawsuit accusing Barclays Plc of fraud in how it operated its U.S. dark pool.
In court filings, the New York AG said he has uncovered new evidence that Barclays cheated clients and investors, and that top executives knew what was happening.
Schneiderman also said that Barclays has refused to cooperate in his probe, and refused to allow two top equities electronic trading executives he had subpoenaed to submit to questioning.
The amended complaint maintains that "Barclays falsely represented that its "Liquidity Profiling" service applied to, and protected, orders routed to its dark pool by Barclays' Barclays' wrongdoing includes the following:
- Barclays falsely represented that its trading algorithms made decisions based on "real time market information" that was not biased in favor of any particular trading venue. In truth, and undisclosed to investors, Barclays intentionally programmed its trading algorithms to "preference" its own dark pool algorithms. In truth, Liquidity Profiling did not apply to such orders;
- Barclays falsely represented that its smart order router "treat[s] all venues the same based on execution quality," and was not biased in favor of any trading venue. In fact, Barclays' smart order router was biased in favor of its own dark pool, regardless of whether an order was likely to be filled there, and secondarily to other venues based on whether those venues were profitable for Barclays. When a detailed analysis of Barclays' order routing practices was conducted for a major institutional investor (that manages money for thousands of ordinary investors, including many in New York) showing that Barclays was routing and executing the vast bulk of this client's sampled orders to Barclays' own dark pool, senior Barclays executives directed that a written presentation to that client be falsified to mask Barclays' biased order routing practices;
- Barclays provided false analyses to clients, potential clients, and the public to hide the extent and type of high frequency trading in its dark pool. For instance, in June 2012, senior Barclays employees doctored a graphic representation of the trading in its pool by removing its then-largest participant, a high frequency trading firm named Tradebot that was known by Barclays to engage in predatory behavior. Internally, Barclays acknowledged that it was "taking liberties" with the truth by doctoring the analysis, but decided to falsify it anyway in order to "help ourselves." When other personnel raised objections, their concerns were brushed aside. In another example, Barclays falsely asserted to clients, potential clients, and the investing public that no more than 6% - 9% of the trading activity in its dark pool was "aggressive." In truth, multiple internal documents obtained by the Attorney General show that Barclays knew that over 25% of the trading activity in the pool was "aggressive";
- Barclays made another series of material false representations to clients, potential clients, and the public about its "Liquidity Profiling" service. Barclays claimed that its Liquidity Profiling service allowed traders to limit the kinds of counterparties with whom they would interact, "protect [clients] from predatory trading," and that Barclays would "continuously police . . . trading activity" in order to "maintain quality flow" in the dark pool. Those representations were false for several reasons, including that: (i) Barclays never removed a single trader - even known predatory traders - from its dark pool; (ii) Barclays failed to regularly profile traders in its dark pool; (iii) Barclays granted liberal "overrides" to high frequency trading firms and to its own internal trading desk in order to make each appear less predatory than they really were; (iv) Barclays failed to apply the protections of Liquidity Profiling to a significant portion of the trading in its dark pool; (v) Barclays misled clients as to how Liquidity Profiling evaluated traders; and
- In an effort to demonstrate its commitment to protecting clients from predatory traders, Barclays falsely represented that it had removed at least one predatory trader from its dark pool. Documents obtained by the Attorney General confirm that that representation was false. In reality, the high frequency trading firm at issue traded millions of shares per day in Barclays' pool during the relevant time period.
Click here to download the modified complaint