The judge overseeing New York state's lawsuit accusing Barclays of fraud in its alternative trading system on Thursday raised questions about the case, putting the attorney general's counsel on the defensive.
Justice Shirley Kornreich of New York Supreme Court in Manhattan reserved judgment on whether she would dismiss the lawsuit before trial, as Barclays has requested. She did not indicate when she would rule.
New York Attorney General Eric Schneiderman sued Barclays in June, accusing the bank of giving an unfair edge to high-frequency traders in its alternative trading system, or dark pool, while claiming to protect other clients from their predatory actions.
Dark pools are private electronic trading venues that operate separately from public exchanges; they allow institutional investors and traders to execute transactions of large blocks of securities anonymously.
Barclays claims Schneiderman's case has "fatal flaws." In its motion to dismiss the lawsuit, Barclays said the complaint failed to identify any fraud and did not establish material misstatements, identify victims or actual harm.
In court, the judge noted that the complaint lacked details regarding any contracts or parties harmed.
"We are not here...representing particular clients," said Chad Johnson, chief of the New York attorney general's Investment Protection Bureau.
"Which bothers me," Kornreich said. "This is a fraud claim and there are absolutely no specifics in this complaint."
Kornreich said she found the complaint "confusing" and "conflated."
She also noted that there are private lawsuits over the trading platform. Barclays is being sued by investors in federal court who claim the bank misrepresented the platform as a safe haven from predatory high-frequency traders.
"That is an entirely different world," Johnson said. "We bring matters all the time that are parallel to private actions for law enforcement reasons."
Attorney Jeffrey Scott, who represents Barclays, said the state has no basis for the misrepresentation claim.
"We do not think they can show...that any investors actually relied on what Barclays was saying to make an investment decision," Scott argued.
The bank says any purported wrongdoing falls outside the scope of the Martin Act, New York state's powerful securities fraud statute.
Johnson called that argument off-base. "This couldn't be a more classic Martin Act case," he said.
Kornreich granted that the statute is "very broad."
The case is People v Barclays Capital Inc., New York State Supreme Court, New York County, NO. 451391/2014.
