Barclays is opposing a class certification decision saying it creates a dangerous precedent that may undermine the US capital markets.
Barclays PLC (LON:BARC), its United States subsidiary Barclays Capital Inc., as well as three (former) senior officers of those companies – Robert Diamond, Antony Jenkins, and William White, are seeking a rehearing of Courts’ decisions in a “dark pool” case.
- What is the case about?
Plaintiffs are Joseph Waggoner, Mohit Sahni, and Barbara Strougo, who had purchased Barclays’ American Depository Shares (ADS).
On June 25, 2014, the New York Attorney General commenced an action alleging that Barclays was violating provisions of the New York Martin Act in operating its dark pool. The complaint alleged that many of Barclays’ representations about protections Barclays’ Liquidity Cross (LX) afforded its customers from high‐frequency traders were false and misleading. The next day, the price of Barclays’ ADS fell 7.38%. On the following day, news reports estimated that Barclays could face a fine of more than £300,000,000 as a result of the Attorney General’s action, and on June 30th its stock price dropped an additional 1.5%.
The Plaintiffs filed the instant putative class action shortly thereafter. They alleged in a subsequent second amended complaint that Barclays had violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and the Securities and Exchange Commission’s Rule 10b‐5.4§ 10(b) by making false statements and omissions about LX and Liquidity Profiling. The Plaintiffs alleged that Barclays’ statements about LX and the Liquidity Profiling system were materially false and misleading by omission or otherwise because, contrary to its assertions, Barclays did not in fact protect clients from aggressive high frequency trading activity, did not restrict predatory traders’ access to other clients, and did not eliminate traders who continued to behave in a predatory manner.
The result of these fraudulent statements, the Plaintiffs asserted, was that the price of Barclays’ ADS had been maintained at an inflated level that reflected investor confidence in the integrity of the company until the New York Attorney General’s lawsuit.
The Plaintiffs then sought class certification for investors who purchased Barclays’ ADS between August 2, 2011, and June 25, 2014.
The New York Southern District Court granted the certification. Barclays sought to appeal that but the Panel affirmed the District Court’s decision. Barclays now requests a rehearing.
- Why is Barclays displeased?
The problem lies in the need (or its lack thereof) for the plaintiffs to present any direct empirical evidence of “market efficiency” (i.e., that the price of the security reacted to material, new information) to build a case against a public company.
According to the defendants, the Court rulings create a “rubberstamp” for any plaintiff seeking class certification in a securities case against a large, publicly traded company: plaintiffs will almost automatically be able to invoke the Basic presumption and defendants will effectively be unable to rebut it.
The decision, according to Barclays, undermines the US capital markets by making every large, publicly traded company located or listed here subject to significant class action fraud suits even in the absence of any proof that any investor relied on any alleged misstatements.
The case is captioned Strougo v. Barclays PLC (0:16-cv-01912).