Barclays Asks Court to Dismiss New York Suit Over Its ‘Dark Pool’

Barclays filed a motion on Thursday to dismiss a lawsuit brought by New York State’s attorney general that accused the bank of lying to customers of its private stock market.

Barclays, in its first legal response to the suit, which was filed last month, argued that its customers were sophisticated enough to understand that “glossy marketing brochures” about the private market, known as a dark pool, did not reflect its actual composition. It said that the attorney general, Eric T. Schneiderman, used documents in misleading ways to draw inaccurate conclusions about high-frequency trading.

The bank also said Mr. Schneiderman had overstepped his legal authority in bringing the lawsuit under the Martin Act, a powerful New York law that sets a relatively low bar for proving fraud. The response was filed in New York State Supreme Court in Manhattan.

“Barclays works closely with its regulators in all jurisdictions and will continue to cooperate with the New York attorney general,” a bank spokesman, Mark Lane, said in an emailed statement. “However, we do not believe that this suit is justified, and we have a duty to our shareholders, clients and staff to defend our position.”

Mr. Schneiderman, the state’s top law enforcer, contended that Barclays favored high-frequency traders over other investors in its dark pool, known as Barclays LX. He said that Barclays had falsified marketing materials, inaccurately portraying the concentration of high-frequency traders in the market, and that it had misrepresented a service that purported to protect investors from predatory trading behavior.

The lawsuit used internal Barclays documents to argue that the bank privately acknowledged a greater level of aggressive trading than advertised. It also quoted from emails in which Barclays employees discussed taking “liberties” in marketing the dark pool.

But in its filing on Thursday, Barclays said that customers of the dark pool knew better than to rely solely on the marketing materials.

One particular marketing document that was cited in the lawsuit — and that Barclays included in its response — features a chart showing the “sample liquidity landscape” of the dark pool. The chart excludes an important high-frequency trading firm, the lawsuit said.

But Barclays countered that the chart was not intended to show the entire and up-to-date composition of the dark pool. The bank pointed repeatedly to the word “sample” in the chart’s caption, citing Webster’s Third New International Dictionary of the English Language to argue that the chart was merely “serving as an illustration or example.”

Moreover, Barclays argued that its customers were “highly sophisticated traders and asset managers” who used “extensive data,” and not just marketing materials, to make decisions.

The bank also said the attorney general had made selective and misleading use of documents. To counter the claim that it misrepresented the “aggressive” trading, Barclays said that the advertised metric cited in the lawsuit was of a different type than the internal metric and that the comparison was erroneous.

The bank also argued that the Martin Act, which covers the sale or purchase of securities, did not apply because the customers were simply buying services and access to the market.

Damien LaVera, a spokesman for the attorney general, said in a statement that the lawsuit “clearly details the allegations that Barclays engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own dark pool.”