Saturday, September 23, 2017

Banks Reach $154.3 Million Settlement on “Dark Pool” Fraud



By on January 31, 2016

WASHINGTON – Two major global banks, Barclays and Credit Suisse, are paying a combined $154.3 million to settle government investigations that they misled clients about being able to safely trade on their “dark pool” financial exchanges, the Securities and Exchange Commission and the New York Attorney General’s office said Sunday.

The banks left their customers on these private exchanges vulnerable to “predatory, high-frequency traders” that could intercept and profit off their financial transactions, despite assurances by Barclays and Credit Suisse to the contrary, according to a statement the New York Attorney General.

“These cases mark the first major victory in the fight to combat fraud in dark pool trading,” said New York Attorney General Eric Schneiderman in the statement. “We will continue to take the fight to those who aim to rig the system and those who look the other way.”

Zurich-based Credit Suisse, a major firm on Wall Street, said it was “pleased to have resolved these matters.”

London-based Barclays, which has extensive operations in the United States, said “the agreement will enable us to focus all of our efforts on serving our clients.”

The SEC and New York Attorney General had planned to announce the joint settlement Monday before it was reported by The Wall Street Journal Sunday morning.

Dark pools are private exchanges for trading stocks and bonds. Unlike traditional markets with public prices, trades on dark pools are generally confidential, a benefit for companies engaging in large transactions.

The investigations – as well as books including Michael Lewis’ best-seller “Flash Boys: A Wall Street Revolt” – found that high-speed traders could get early access to dark pool trades and gain an unfair advantage.

“Dark pools have a significant role in today’s equity marketplace, and the firms that run these venues must ensure that they do not make misstatements to subscribers about their material operations,” said Andrew Ceresney, director of the SEC’s enforcement division.

As part of the settlement, the statement says that the London-based Barclays admitted that it misled investors and violated securities laws.

The sign on a branch of Barclays Bank in London. (AP Photo/Kirsty Wigglesworth, File)

The sign on a branch of Barclays Bank in London. (AP Photo/Kirsty Wigglesworth, File)

Barclays, which has extensive operations in the United States, will pay $70 million in penalties to be split evenly between the SEC and New York state, according to the federal and state regulators.

The New York Attorney General’s office said its investigation found that Credit Suisse misrepresented the protections offered to clients on its dark pools. The bank will pay a $60 million penalty with half going to New York and the other half to the SEC, which will collect an additional $24.3 million related to other violations.

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