(CN) – Investors may sue Barclays as a class on allegations that the bank failed to provide promised protections against high-frequency traders on its dark pool exchanges, causing its share price to fall over seven percent when the truth came out, the Second Circuit ruled.
Dark pools are alternative trading systems to the major stock exchanges that let buyers and sellers trade without displaying prices to the public.
Barclays told investors it would run surveillance reports to police its dark pool for predatory trading, but in fact did not run the promised reports. It also misrepresented the type and number of market data feeds it used to calculate bids, according to the Securities and Exchange Commission’s investigation.
When the New York Attorney General sued Barclays over its dark pool trading in 2014, the bank’s shares took a steep hit, falling 7.4 percent the following day. Barclays agreed to pay $35 million each to the SEC and New York Attorney General to settle the charges against it.
The Second Circuit, meanwhile, refused to dismiss an investor class action against Barclays for allegedly failing to protect investors’ interests against high-frequency traders.
Barclays’ expert “Dr. James concluded that a portion of the 7.38 percent decrease in the price of Barclays’ ADS [American depository shares] following the announcement of the New York Attorney General’s action resulted from concerns about that action itself and the potential fines that might accompany it,” Judge Christopher Droney said, writing for the three-judge panel. “But merely suggesting that another factor also contributed to an impact on a security’s price does not establish that the fraudulent conduct complained of did not also impact the price of the security.”
The court also reviewed and upheld the investors’ proposed damages model, which measures the alleged harm to an individual shareholder when ongoing problems with Barclays management were made public by the New York Attorney General’s lawsuit.