By Herbert Lash and Steve Slater
NEW YORK/LONDON (Reuters) - Barclays Plc urged the dismissal on Thursday of a lawsuit from the New York attorney general alleging the bank lied to clients about its high-speed trading venue, saying the complaint had "fatal flaws" because Barclays' customers were never misled.
The bank's motion to dismiss the lawsuit against its private trading venue – or "dark pool" – said the attorney general failed to identify any fraud, and did not establish material misstatements, identify victims or actual harm.
Barclays said the lawsuit filed by Attorney General Eric Schneiderman had clear and substantial errors. Should litigation proceed, the bank said it would show how baseless the allegations are.
"The very marketing documents and e-mails from which the complaint selectively quotes, along with the complaint's other fatal flaws, are sufficient to require dismissal of this 'fraud'
action," the motion said.
In a statement from a spokesman, Schneiderman stood his ground, saying the lawsuit detailed how Barclays engaged in "a persistent pattern of fraud and deceit, lying to its investors in order to grow its dark pool."
Barclays said Schneiderman lacked the authority to accuse the bank of wrongdoing under New York's Martin Act, which aims to protect investors when the purchase, sale or exchange of a security is misrepresented.
Barclays' clients are highly sophisticated traders and money managers who are capable of closely monitoring the quality of their trades based on execution data, not glossy marketing brochures or quotes from magazine articles, the bank said.
The allegations are premised on mischaracterizations of documents portrayed in the complaint in a way that removes important information and context Barclays provided about high frequency traders and "aggressive" trading, the bank added.
It said sales materials the bank showed clients were misconstrued, in one case making one document appear as if it were two. Seen as one document, Barclays argued a sophisticated investor would fully understand the intricacies of trading on its high-frequency venue known as LX.
Barclays said in a statement that it works closely with regulators in all jurisdictions and will continue to cooperate with the New York attorney general. "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," the bank said.
Schneiderman's fraud claims could hang over Barclays well into next year, as it typically takes at least six months for a decision to be made on whether to dismiss a complaint or proceed to trial.
The attorney general's lawsuit against Barclays was filed on June 25. It accuses the bank of giving high-frequency traders, using advanced computer systems and algorithms to trade securities in milliseconds, an unfair advantage over investors. [ID:nL2N0P61T3]
The lawsuit marks the highest profile case yet stemming from scrutiny of high-frequency trading by U.S. authorities. Trading activity in Barclays' dark pool slumped by more than three-quarters in the two weeks after the lawsuit, and its shares are down 7 percent since the complaint was filed. [ID:nL4N0PW0S0]
(Additional reporting by Karen Freifeld in New York)