(Adds background of law firm, ex-SEC chief litigator hired in
Barclays dark pool probe)
By Steve Slater and Sarah N. Lynch
LONDON/WASHINGTON June 27 Barclays Plc
has hired lawyers from the high-profile firm Wilmer Cutler
Pickering Hale and Dorr LLP to help the bank defend itself
against accusations that it deceived investors in its "dark
pool" trading venue, according to people familiar with the
Matthew Martens, formerly the chief litigator at the U.S.
Securities and Exchange Commission, is among the WilmerHale
lawyers working on the case, the sources said.
Martens is known for leading the SEC to victory in its civil
fraud trial against Fabrice "Fabulous Fab" Tourre, the former
Goldman Sachs vice president who was found liable by a
New York jury for misleading investors in a subprime mortgage
product that failed during the financial crisis.
Kerrie Cohen, a spokeswoman for the bank, declined to
Martens did not respond to an e-mail seeking comment.
Barclays' shares slid 6.5 percent on Thursday to a 19-month
low after New York Attorney General Eric Schneiderman filed a
securities fraud lawsuit that takes aim at the British bank's
"dark pool" trading venue, known as LX Liquidity Cross.
Dark pools let institutional investors trade large blocks of
shares anonymously and only make trading data available
afterwards so that investors with large orders are not at a
The news wiped more than 2 billion pounds ($3.4 billion) off
of Barclays' market value on Thursday, though the stock closed
up 0.5 percent on Friday on the London Stock Exchange. Barclays'
New York-listed shares tumbled 7.4 percent on Thursday to close
at a 19-month low of $14.55 following news of the lawsuit and
then recovered on Friday, ending up 2.1 percent.
The attorney general's lawsuit accuses the Barclays dark
pool of giving high-frequency traders an unfair advantage, even
though the bank had promised investors they would be protected
from "predatory" and "toxic" traders.
The complaint also said the bank broke its promise to get
its customers the best prices by executing nearly all of their
orders on LX, instead of searching for better deals at rival
exchanges and trading platforms.
Barclays' dark pool business originally belonged to Lehman
Brothers, the investment bank that collapsed in September 2008.
Barclays subsequently bought Lehman's U.S. business.
The 31-page complaint from Schneiderman said internal
Barclays documents valued the growth opportunity from pushing
more orders into its dark pool at between $37 million and $50
million per year.
Total revenues for the dark pools business may be $100
million to $200 million, industry sources and analysts
estimated, out of $4.6 billion in equities revenues last year.
Analysts said the hit to its stock reflects broader concern
that customers may leave Barclays and that Chief Executive
Officer Antony Jenkins will struggle to turn around the bank's
culture as quickly as he needs to, as well as anxiety about the
threat of higher-than-expected litigation costs on a range of
"The complaint reminds investors of the litigation burden
that faces the sector and Barclays," said Michael Helsby, an
analyst at Bank of America Merrill Lynch.
The CEO told Barclays staff in a memo issued on Thursday he
had started an internal investigation into the allegations.
"To assist us in that, we have brought in substantial
external resource to ensure that the investigation can proceed
at pace and is properly objective," Jenkins' memo said.
The memo did not disclose which law firm had been hired.
Barclays has been hit by a series of scandals in recent
years, including its role in the rigging of the Libor interest
rate, which cost then-CEO Bob Diamond his job in 2012, leading
to huge fines and legal bills.
Helsby raised his estimate of possible litigation costs for
Barclays to 7.5 billion pounds over the next three years, from
2.4 billion, and cut his price target on the stock to 285p from
Barclays, which has 20 days to respond to the lawsuit, said
on Friday it was still assessing the complaint.
Barclays could incur a litigation cost of $163 million from
the dark pool activities, Credit Suisse analysts estimated.
Rival banks have pulled business out of Barclays' dark pool,
the Financial Times reported. Deutsche Bank, Credit
Suisse and Royal Bank of Canada and asset
manager Alliance Bernstein had all withdrawn from the dark pool,
it said, citing people familiar with the matter.
Barclays has the second most-active alternative trading
system in the United States after Credit Suisse, according to
data compiled by the Financial Industry Regulatory Authority,
the Wall Street-funded regulator.
They are followed in size by UBS , Bank of
America Merrill Lynch, Morgan Stanley, Deutsche
Bank and Goldman Sachs.
Shares of other banks also fell after the Barclays lawsuit,
on concern that others will also be targeted.
($1 = 0.5880 British Pounds)
(Reporting by Steve Slater in London and Sarah N. Lynch in
Washington; Additional reporting by Lionel Laurent; Editing by
David Stamp and Jan Paschal)