Barclays (BCS) Hires Outside Firm To Help In Dark Pools Investigation

Banks

According to a Reuters report that references sources familiar with the matter, Barclays Plc (BCS) has hired lawyers from the high-profile firm Wilmer Cutler Pickering Hale and Dorr LLP to help the bank defend itself against accusations that it systematically cheated and defrauded its customers over the way it operated its “dark pool” private trading system.

Matthew Martens, formerly the chief litigator at the U.S. Securities and Exchange Commission, is among the WilmerHale lawyers working on the case, the report said.

Martens is known for leading the SEC to victory in one of the most high-profile credit crunch related cases against Fabrice Tourre, the former Goldman Sachs (GS) VP who was found guilty of six out of seven of the SEC fraud claims for misleading investors about subprime mortgage securities that he knew were junk.

Barclays’ shares plunged nearly 7% on Thursday after New York Attorney General Eric Schneiderman filed a securities fraud lawsuit that accuses the British bank of favoring its high-frequency trading clients.

“The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit,” Attorney General Eric Schneiderman said in a statement. “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.”

Dark pools is a private trading venue where institutional investors are allowed to trade large blocks mostly anonymously. Barclays runs one of Wall Street’s largest dark pools.

The news of the lawsuit wiped $3.4 billion off of Barclays’ market cap on Thursday. BARC was the biggest loser in the London Stock Exchange, at one point losing 9% before closing 6.5% lower. Barclays’ ADR plunged 7.4% on Thursday to close at a 19-month low of $14.55. Shares recovered on Friday, ending up 2.1%.

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