New York AG Civil Suit Targets International Bank’s “Dark Pool”, Relationships With High-Frequency Traders

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On June 25, New York Attorney General (AG) Eric Schneiderman announced the filing of a civil suit against a large international bank alleging that, from 2011 to the present, the bank violated the Martin Act by making false statements to clients and the investing public about how, and for whose benefit, the bank operates its private securities trading venue, i.e. its dark pool. The AG claims that the bank actively sought to attract high frequency traders to its dark pool, and provided such traders advantages over others trading in the pool, while telling clients and investors that it implemented special safeguards to protect them from such high-frequency traders. Specifically, the AG alleges that the bank: (i) falsified marketing materials purporting to show the extent and type of high frequency trading in its dark pool; (ii) falsely marketed the percentage of high frequency trading activity in its dark pool; (iii) made a series of false representations to clients about its “Liquidity Profiling” service; (iv) falsely represented that it routed client orders for securities to trading venues in a manner that did not favor its own dark pool; and (v) secretly provided high frequency trading firms informational and other advantages over other clients trading in the dark pool. The suit seeks an order requiring the bank to pay damages, disgorge amounts obtained in connection with the alleged activities, and make restitution of all funds obtained from investors in connection with the alleged acts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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