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Barclays accused of 'dark pool' fraud Barclays accused of 'dark pool' fraud
(about 1 hour later)
A fraud lawsuit against Barclays in the United States has been filed by the New York attorney general.A fraud lawsuit against Barclays in the United States has been filed by the New York attorney general.
The lawsuit alleges the bank falsified documents and misrepresented benefits it was offering to big institutional clients, including pension funds.The lawsuit alleges the bank falsified documents and misrepresented benefits it was offering to big institutional clients, including pension funds.
It relates to the bank's "dark pool" trading operations, which allow clients to trade large blocks of shares while keeping prices private.It relates to the bank's "dark pool" trading operations, which allow clients to trade large blocks of shares while keeping prices private.
Barclays said it was taking the allegations "very seriously".Barclays said it was taking the allegations "very seriously".
Shares in the bank fell more than 5% in early trading in London. Shares in the bank had fallen more than 5% by early afternoon trading in London.
Prosecutors said Barclays misrepresented the kinds of investors that were using the dark pool. They said the bank claimed the pool was closed to aggressive traders, but in reality it was not.Prosecutors said Barclays misrepresented the kinds of investors that were using the dark pool. They said the bank claimed the pool was closed to aggressive traders, but in reality it was not.
They also said the bank had misled ordinary investors by claiming it would use a stock exchange or dark pool that "would best execute their trades" at any given time, but in fact the trades were "nearly always" routed to Barclays' own dark pool so the bank could make more money.They also said the bank had misled ordinary investors by claiming it would use a stock exchange or dark pool that "would best execute their trades" at any given time, but in fact the trades were "nearly always" routed to Barclays' own dark pool so the bank could make more money.
The world's major stock markets, such as the London and New York Stock Exchanges, are known as light markets, as they are highly transparent and regulated.The world's major stock markets, such as the London and New York Stock Exchanges, are known as light markets, as they are highly transparent and regulated.
Dark pools are private markets set up by banks that are less transparent and so are not open to the same levels of scrutiny.Dark pools are private markets set up by banks that are less transparent and so are not open to the same levels of scrutiny.
'Full of predators''Full of predators'
New York attorney general Eric Schneiderman said: "The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit."New York attorney general Eric Schneiderman said: "The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit."
"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," he 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," he said.
The complaint details "a flagrant pattern of fraud, deception and dishonesty with Barclays clients and the investing public," he added.The complaint details "a flagrant pattern of fraud, deception and dishonesty with Barclays clients and the investing public," he added.
Mr Schneiderman said presentations made by Barclays were "demonstrably false". He read out some of the emails cited in the complaint. One, from a vice-president of sales, said: "I always like the idea we are being transparent, but happy to take liberties if we can all agree".Mr Schneiderman said presentations made by Barclays were "demonstrably false". He read out some of the emails cited in the complaint. One, from a vice-president of sales, said: "I always like the idea we are being transparent, but happy to take liberties if we can all agree".
AnalysisAnalysis
Samira Hussain, BBC business reporter, New YorkSamira Hussain, BBC business reporter, New York
Dark pools are under the spotlight.Dark pools are under the spotlight.
There are at least 40 operating in the US where they compete against traditional exchanges.There are at least 40 operating in the US where they compete against traditional exchanges.
But these private platforms operate outside the public eye.But these private platforms operate outside the public eye.
And that's becoming a big issue, especially in this post-recession era, when banks have been blamed for a crippling financial crisis.And that's becoming a big issue, especially in this post-recession era, when banks have been blamed for a crippling financial crisis.
Regulators are taking a much closer look at everything banks do, especially things that can so easily fall under the radar.Regulators are taking a much closer look at everything banks do, especially things that can so easily fall under the radar.
The lawsuit said that Barclay's marketing material was misleading over the extent of high-frequency trading in its dark pool.The lawsuit said that Barclay's marketing material was misleading over the extent of high-frequency trading in its dark pool.
High-frequency traders use fast, sophisticated trading software to buy and sell shares faster than ordinary investors, and can make large profits by taking advantage of very small moves in share prices.High-frequency traders use fast, sophisticated trading software to buy and sell shares faster than ordinary investors, and can make large profits by taking advantage of very small moves in share prices.
The lawsuit accused Barclays of telling investors trading was being closely monitored and "predatory" traders would be held accountable.The lawsuit accused Barclays of telling investors trading was being closely monitored and "predatory" traders would be held accountable.
'Inside help''Inside help'
But in fact Barclays did not prohibit a single trader from operating in its dark pool, the lawsuit said.But in fact Barclays did not prohibit a single trader from operating in its dark pool, the lawsuit said.
In addition, the lawsuit alleges that Barclays operated its dark pool to favour high-frequency traders and "actively sought to attract them".In addition, the lawsuit alleges that Barclays operated its dark pool to favour high-frequency traders and "actively sought to attract them".
"Some might argue that if you trade in dark pools and come across some sharks, you shouldn't be too surprised," said the BBC's business editor Kamal Ahmed."Some might argue that if you trade in dark pools and come across some sharks, you shouldn't be too surprised," said the BBC's business editor Kamal Ahmed.
He said Barclays could be facing "endless fines" if the allegations are proved.He said Barclays could be facing "endless fines" if the allegations are proved.
In a statement the bank said: "Barclays has been cooperating with the New York attorney general and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays."In a statement the bank said: "Barclays has been cooperating with the New York attorney general and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays."
The attorney general said that the investigation had been significantly helped by a number of former Barclays' employees.The attorney general said that the investigation had been significantly helped by a number of former Barclays' employees.
Other investigationsOther investigations
Barclays has been the subject of several investigations, fines and settlements in recent years.Barclays has been the subject of several investigations, fines and settlements in recent years.
In May it was fined £26m by UK regulators after one of its traders was discovered attempting to fix the price of gold.In May it was fined £26m by UK regulators after one of its traders was discovered attempting to fix the price of gold.
In April, Barclays agreed to a $280m (£167m) settlement with the US Federal Housing and Finance Authority (FHFA).In April, Barclays agreed to a $280m (£167m) settlement with the US Federal Housing and Finance Authority (FHFA).
The agreement settles claims by the FHFA that Barclays misled US mortgage lenders Fannie Mae and Freddie Mac during the housing crisis.The agreement settles claims by the FHFA that Barclays misled US mortgage lenders Fannie Mae and Freddie Mac during the housing crisis.
In 2012 it was fined £290m by UK regulators for attempting to manipulate an important lending rate, known as Libor.In 2012 it was fined £290m by UK regulators for attempting to manipulate an important lending rate, known as Libor.