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US prosecutors announce fraud charges against Barclays

June 26 2014, 10:46

Fraud charges against Barclays in the United States have been announced by New York state prosecutors, bbc reports.

A lawsuit alleges that the bank falsified documents and misrepresented systems in place to protect certain investors from aggressive trading.

It relates to the bank's "dark pool" trading operations, which allow clients to trade large blocks of shares while keeping prices more private.

Barclays said it was taking the allegations "very seriously".

Prosecutors said Barclays misrepresented the kinds of investors that were using the dark pool.

'Full of predators'

New York Attorney General 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.

Dark pools are under the spotlight.

There are at least 40 operating in the US where they compete against traditional exchanges.

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.

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.

High-frequency traders use fast, sophisticated trading software and can make large profits on 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.

'Inside help'

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 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.

Other investigations

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 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.

In 2012 it was fined £290m by UK regulators for attempting to manipulate an important lending rate, known as Libor.

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