Great Pacific Securities loses appeal in Barclays’ LX dark pool case

Barclays has secured an important win in a case alleging it made a series of fraudulent misrepresentations and omissions regarding its Liquidity Cross (LX) dark pool. On Monday, July 30^th, the US Court of Appeals for the Ninth Circuit agreed with the District Court that the complaint launched by Great Pacific Securities should be dismissed for failure to state a claim.

According to Great Pacific, one of Barclays’ customers, Barclays marketed LX and other various trading tools to institutional investors as a means to avoid aggressive high frequency traders (HFTs). Great Pacific alleges that Barclays misrepresented both the number of aggressive HFTs trading in LX and its ability and intent to police LX for aggressive HFT behavior. According to Great Pacific, these misrepresentations caused institutional investors to execute trades in LX and pay higher prices on purchases, receive lower prices on sales, and pay fees to Barclays when they would not have otherwise.

Let’s recall that Barclays moved to dismiss the Third Amended Complaint (TAC) and the district court granted the motion with leave to amend. Great Pacific declined the opportunity to amend the TAC and filed an appeal.

The Ninth Circuit U.S. Court of Appeals has reviewed de novo a district court’s decision to grant a motion to dismiss for failure to state a claim.

As per the Memorandum, the district court correctly found that the TAC failed to plead reliance with particularity. Specifically, Great Pacific has failed to plead with particularity that it received and was aware of the representations regarding LX which it claims were false. With the exception of one iteration of a pitchbook distributed by Barclays to its clients, Great Pacific’s complaint is seen as having failed to allege that Great Pacific received the specific marketing materials and representations cited in its complaint. Great Pacific also fails to plead that anyone at the company read the pitchbook or how Great Pacific personnel relied on the pitchbook.

In brief, Great Pacific’s complaint fails to plead with particularity the “who, what, when, where, and how” of its reliance.

The claim that Barclays defrauded its customers by failing to disclose various regulatory violations is also rebuted. This claim fails because the complaint does not adequately allege that Barclays knew that it was omitting material information, that it intended to deceive its clients, or that Great Pacific would have acted differently had it known of the regulatory violations.

Regarding Great Pacific’s claim based on Barclays’ alleged violation of the California’s Unfair Competition Law (UCL), this claim fails because Great Pacific did not allege that it suffered an economic injury due to these violations, as required to state a UCL claim.

In addition, the appeals court sides with the district court in denying Great Pacific’s motion for discovery. Great Pacific had to be able to allege they read and relied on the claimed misleading information before requiring Barclays to disclose what it knows about which plaintiff relied on its communications.

That is why, the district court’s judgment dismissing Great Pacific’s claims and denying Great Pacific’s request for discovery was affirmed.