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Barclays share price got a well-deserved, swift kick in the seat of its pants today as it dropped 6.52% on the London Exchange (LSE:BARC) and is down 6.75% on the New York Exchange (NYSE:BCS) as of 2:44 EDT. The Barclays share price hit a 19-month low on the LSE, closing at 215.00, and reducing its market cap by nearly £2 billion, following news that the New York State Attorney General has filed a lawsuit alleging several fraudulent activities by Barclays relative to the operations of its LX Liquidity Cross alternative trading system, also known as a “dark pool.”
The Accusation
Attorney General Schneiderman said, “The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit.”
The “systematic pattern of fraud and deceit” apparently began with a marketing misrepresentation of its dark pool investing program and has run throughout the entire program, including falsification of information upon which investors were relying to make a informed decisions. Barclays may argue that it did not give out misinformation, as a point of law, but what it did was to provide incomplete information by removing facts they considered to be detrimental to their own objectives.
Had the redacted information never been available, that would be a case of not presenting adequate information. While that may or may not be legal, it would certainly be unethical. But this is a bank. Banks have proven to us altogether too many times that many of them are not concerned about ethics, so we ought not to be surprised.
The Actuality
Because Barclays deliberately removed detrimental information from marketing information and account reports, they appear to have crossed deep into the fraudulent province of unethical territory. Whilst they knowingly removed information from marketing presentations to make the dark pool appear to be a safe place, they were, in effect, inviting unwitting investors into a pool of sharks. They made it appear to potential investors that there were no sharks, when Barclays knew that, indeed, there were.
Using the chart in Figure 1, and by fudging or entirely eliminating some essential information, Barclays attempted to demonstrate that most of the traders in the pool were in safe waters, i.e., within the green or white areas. This would appear to be deliberate misrepresentation of the facts, and that is a crime that the law does not take lightly.
Barclays is attempting to claim that the chart was used only as a “sample” of how they determine the safety of the investment pool. In addition to being a lame excuse for a major banking entity, employees who used it and investors to whom it was presented are lining up to rebut the bank’s excuse.
My Advice
Among the many lessons I learned in my youth were
Say what you mean and mean what you say, and
Do right until the stars fall.
Although it may be a wee bit late for Barclays to apply these guidelines in this matter, it might be the perfect time for them to adopt them as principles for conducting their business beginning right now.
Finally, just stop it. Yours is not the only eye you are blackening. You have given one to the entire banking industry. What the industry needs right now is someone who will prove that they are trustworthy. Apparently that someone is not going to be Barclays.
Chart source: New York v. Barclays Capital Complaint and Bloomberg View.
