Banks reach $154.3 million settlement on "dark pool" fraud

WASHINGTON – Two major global banks, Barclays and Credit Suisse, will pay a combined $154.3 million to settle state and federal investigations that they misled clients about the safety of trading on their "dark pool" financial exchanges, the New York Attorney General's office expects to announce Monday.

The banks left their customers on these private exchanges vulnerable to "predatory, high-frequency traders" that could intercept their financial trades, despite assurances by Barclays and Credit Suisse to the contrary, according to a draft statement obtained by The Associated Press that announces the joint settlement with New York and the U.S. Securities and Exchange Commission.

"These cases mark the first major victory in the fight to combat fraud in dark pool trading," said New York Attorney General Eric Schneiderman in the statement. "We will continue to take the fight to those who aim to rig the system and those who look the other way."

Zurich-based Credit Suisse, a major firm on Wall Street, declined comment.

The Wall Street Journal first reported the settlement Sunday morning.

Dark pools are private financial exchanges for trading securities such as stocks and bonds. Unlike a traditional exchange where the pricing is public, trades on dark pools are generally confidential, a benefit for companies engaging in large transactions. The investigations and books — including Michael Lewis' best-seller "Flash Boys: A Wall Street Revolt" — found that high-speed traders could get early access to the trades on dark pools and gain an unfair advantage.

As part of the settlement, the statement says Barclays admitted that it misled investors and violated securities laws. The London-based bank, which has extensive operations in the United States, was unavailable for comment.

Barclays will pay $70 million in penalties to be split evenly between the SEC and New York state, according to Schneiderman's office.

The New York Attorney General's office said its investigation found that Credit Suisse misrepresented the protections offered to clients on its dark pools. The bank will pay a $60 million penalty with half going to New York and the other half to the SEC, which will collect an additional $24.3 million related to other violations.