Barclays Can’t Kick Class Suit Over Dark Pool Statements

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By Phyllis Diamond

Barclays PLC must face class securities fraud claims that it lied about advantages given high-frequency traders that used the firm’s “dark pool” alternative trading system.

The district court didn’t err in certifying a class of investors that bought Barclays American Depository Shares between 2011 and 2014, the U.S. Court of Appeals for the Second Circuit said Nov. 6 ( Waggoner v. Barclays PLC , 2017 BL 397330, 2d Cir., No. 16-1912-cv, 11/6/17 ). The investors adequately pleaded that they relied on Barclays’ alleged misstatements and their damages methodology “posed no obstacle to certification,” Judge Christopher F. Droney said.

The appeals court’s ruling means the investors may proceed against the British investment bank on a group basis, rather than having to bring individual lawsuits to recover their losses.

Dark pools such as Barclays’ Liquidity Cross—LX are private stock markets usually operated inside large banks. Unlike on public exchanges, supply and demand is private until after trades are executed. Some investors claim the system allows the banks to provide secret advantages to favored traders.

Presumption of Reliance

According to the complaint, to address concerns that high-frequency traders may have been front-running in LX—trading ahead of large, incoming trades before those trades are completed—Barclays officials made numerous statements to the effect that LX was safe from such practices and that the bank was taking steps to protect LX traders. The investors claimed those statements were false, and that in fact, Barclays favored high-frequency traders.

After the lawsuit survived a dismissal motion, the district court granted the investors’ motion for class certification and the appeals court affirmed. It agreed that:

  •  the presumption of reliance set out in Basic Inc. v. Levinson, a 1988 U.S. Supreme Court case, applied without considering direct evidence of price impact when it found that ADS traded in an efficient market;
  •  Barclays and its officials didn’t rebut the presumption of reliance by a preponderance of the evidence; and
  •  the investors’ proposed method for calculating class-wide damages was appropriate.
Early last year, Barclays settled related allegations by New York Attorney General Eric Schneiderman and the Securities and Exchange Commission, agreeing to pay $70 million, split evenly between the two enforcers. In the SEC settlement, the bank also agreed to have a third-party consultant review how it manages its dark pools business.

To contact the reporter on this story: Phyllis Diamond in Washington at

To contact the editor responsible for this story: Seth Stern at

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