Dark Pools Under Fire: NY Slaps Barclays With Suit

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June 27 (Bloomberg) -- Paul Hastings' Richard Farley, Berenzweig Leonard's Seth Berenzweig and Bloomberg's Keri Geiger discuss the New York Attorney General's fraud suit against Barclays on "Street Smart." (Source: Bloomberg)

Weeks for banks as regulators crack down.

Barclays is being sued i new york state.

Accused of lying to customers and allegedly masking the role of high-frequency traders.

I sat down with the new -- new york attorney general and asked him how this came about.

One of the things barclays was doing was changing the data and misleading clients about how many of the traits were filled in their own dark pool.

They said the owned this elaborate propaganda.

We go to the market that is best for the client.

The data that the director was preparing for a big institutional investors showed 75% of the traits were filled in ugly start pulls.

You get compensation for having done the trade yourself.

We know that they were also allowing high-frequency traders access.

So essentially they were attracting fish into their pond with the promise there were no editors but they were inviting the predators in.

Barclays has temporarily removed to the head of equity trading according to a person familiar with the matter.

What lies ahead for barclays and the other banks facing lawsuits?

I am joined by our guests and carry geithner.

They engaged in this trading dark pools, putting traits into their own dark pool instead of wringing it out to the open market and effectively lying about it is the said what we are doing is far fewer transactions than you think.

That appears to be what the disgruntled ex-employees have told the interior -- and the attorney general and we will have to see what the responses.

We have heard nothing in terms of litigation or claims or statements by the alleged victims of this allegedly bad conduct.

We have to -- it is not hard to figure out who are the victims.

These are the people who were doing big blocks of trade in these dark pulls and how do we know what they might have missed out on?

The case is built around a fraudulent practices against its own clients based on them are necked witches a broad statue that new york state has and eliot spitzer used for many years to crack down on wall street to root out corporate fraud.

It is about the fact that they misled customers.

There could be private litigation moving forward i clients who think they might have lost out.

What kind of message does this send to other firms?

It sends a large message because this is a game changer.

The panel is saying we do not know what is going to be happening.

Deutsche bank knows what is going on and they have pulled out and there have been other folks who have voiced concern.

This will be a game changer.

This is a serious case.

The allegations go broad and deep and you have hard evidence, witnesses, documents.

It is early but this is going to dig very deeply into the way that these vehicles operate.

You're going to see follow-up activity in washington from the sec.

I wanted to back up.

The new york attorney general is saying that it is not fair, it is not right, that they were doing most of their trade in a wide variety of start pulls when in fact they were doing most of them right there barclays.

They should have been looking for the best deal for their clients but instead they were trying to allegedly pump up the volume of their own your pull by mr.

Acting -- than they make more money on it.

Probably a lot of that happens.

It is not a good thing and that does not make it right.

Lex it is going to crack open the dark pulls industry that we just do not know a lot about how these banks do it and they will wedge open and shed some light on things we have not seen before on how these things operate.

One of the things we need to consider is whether or not litigation to take a holistic view of what is going on with start pulls and how best to regulate them going forward.

It is the worst imaginable.

People will take their positions with respect to reducing their exposure rather than saying let's formulate rules that are going to be in the best interest of whatever class of investment you like protecting.

You have to figure out which class of investor is entitled to what protection and how you balance that.

I do not think that litigation is the best end or should -- most efficient way of doing it.

I would agree.

I am not a fan of going after the big banks for litigation but if these allegations hold true these are very serious.

Major institutional players will be very and -- very upset.

Now you're going to see the banks of the world lifting up the hood and saying we were told a lot of information was false and you deceived us.

There is a litigation [inaudible] if deutsche feels that why don't they bring their own lawsuit?

Bnp will be paying $9 billion to settle these charges.

$9 billion for a relatively small bank in the landscape.

Bnp is not like jpmorgan.

And for violating sanctions.

Is it a coincidence that bnp and barclays are both in the news and in trouble with the feds now, to european banks?

The case can be made against a large american bank, they would make that case.

These are pretty serious allegations, potentially wearing money to potential terrorists in sudan and iran.

We are out of time but thank

This text has been automatically generated. It may not be 100% accurate.


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