NY AG to file suit against Barclays over 'dark pools'

NY AG sues Barclays over 'dark pool'

New York state Attorney General Eric Schneiderman will file a securities fraud lawsuit against Barclays for its use of "dark pools" on Wednesday, a source tells CNBC.

Dark pools are trading systems set up by banks that operate outside regulated exchanges.

The suit alleged that the firm's dark pools engaged in deceptive practices, fraud, misleading investors and false advertising.

"We take these allegations very seriously," a Barclays spokesman said. "Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays."

Schneiderman's complaint draws on numerous documents, including communications provided by former Barclays employees. "This is a case about fraud and deceit by one of the world's largest banks," Schneiderman said in the complaint.

Attroney General Eric T. Schneiderman to sue Barclays Bank over securities fraud on June 25, 2014.
Trusha Chokshi | CNBC

The suit alleges that Barclays operates its dark pool to favor high-frequency traders and has actively sought to attract them by giving them systematic advantages over others trading in the pool.

"Barclays falsified marketing material purporting to show the extent and type of high frequency trading in its dark pool," Schneiderman said. "Barclays intentionally excluded from the material the dark pool's then-largest participant—a high frequency trading firm Barclays knew engaged in predatory behavior in the dark pool."

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Dark pools have come under scrutiny since author Michael Lewis published a book alleging the U.S. stock market is rigged in favor of high-frequency traders.

"Barclays grew its dark pool by telling investors they were diving into safe waters. According to the lawsuit, Barclays' dark pool was full of predators–there at Barclays' invitation, Schneiderman said in a statement.

—By CNBC's Karma Allen with reporting by Mary Thompson and Jim Forkin