Barclays Faces US 'Dark Pool' Fraud Lawsuit
US authorities have launched a securities fraud lawsuit against Barclays linked to its private trading system, or "dark pool".
New York attorney general Eric Schneiderman alleged that the London-based bank's dark pool gave advantages to high-frequency traders.
Shares in Barclays were down more than 7% in mid-afternoon Thursday trades in London, with the bank being the FTSE 100 index's biggest loser.
US officials alleged that Barclays misled investors about "toxic and predatory" practices in the system.
The lawsuit says the bank boosted the market share of its dark pool through a series of dishonest statements to clients.
Dark pools are off-exchange systems that allow investors to trade blocks of shares anonymously, with the size and price of the orders hidden from other participants.
"The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit," Mr Schneiderman said.
"Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays' dark pool was full of predators - there at Barclays' invitation."
The attorney general said Barclays falsified marketing material to back up its claims.
It allegedly removed from one marketing document mention that a high-frequency trading firm, known to engage in predatory practices, was a major participant in the dark pool.
One employee allegedly stated: "I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree."
Mr Schneiderman said of the bank: "And, boy, did they take liberties."
Barclays also heavily promoted a service called Liquidity Profiling, which the bank said would weed out predatory traders.
But the lawsuit says that system falsely assigned safe ratings to "toxic" traders.
Barclays also allegedly overrode ratings for some of its own internal trading desks that were engaged in high-frequency trading.
A number of former employees of the bank helped the investigation by reporting the wrongdoing, said the attorney general.
A Barclays spokesman, said: "We take these allegations very seriously.
"Barclays has been co-operating with the New York attorney general and the Securities & Exchange Commission and has been examining this matter internally. The integrity of the markets is a top priority of Barclays."