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Barclays has called on the High Court in London to slash the value of a £560mn lawsuit from investors by striking out the claims of passive funds over a drop in its share price triggered by regulatory scrutiny of its “dark pool” trading exchange.
Scores of investment funds are suing Barclays, arguing the bank’s share price had been “artificially inflated” by “false representations” the lender had made about its dark pool exchange that allows trades to be conducted in private.
Lawyers acting for Barclays argued that passive funds, which are taking part in the litigation, could not be said to have been misled by the bank and should not be able to sue as they had not read disclosures made by the lender. Passive funds buy shares automatically based on inclusion in market indices.
Helen Davies KC, representing the bank, told the court that the claimants’ case had a “fundamental deficit”.
But Jonathan Nash KC, acting for the shareholders, said in written arguments that all investors, whether active or passive, are “entitled to and do” trade on the basis that share prices incorporate “all material information”.
The judge’s decision will help determine if index tracking funds can participate in other lawsuits that are piling up against UK companies over share price declines.
Shareholders in Barclays filed a lawsuit against the bank in London in 2020, arguing it had made “untrue” or “misleading” statements to the market.
It is one of several suits that have been filed in the High Court against London-listed companies including Glencore and Standard Chartered, which are also contesting them.
The bank is contesting the lawsuit and wants the court to strike out the claims of 242 funds and sub-funds that are valued at about £330mn — more than half the total £560mn against it.
Passive funds managed by Amundi and State Street are among investors suing Barclays over losses that shareholders sustained a decade ago.
About £2.5bn was wiped off Barclays’ market capitalisation on a single day in 2014 after US regulators sued the bank for allegedly favouring high-speed traders on its dark pool against the interests of institutional investors.
Eric Schneiderman, New York’s then attorney-general, claimed at the time that the bank’s dark pool was “full of predators — there at Barclays’ invitation”.
Barclays agreed in 2016 to pay $70mn to the Securities Exchange Commission and Schneiderman’s office as part of a settlement in which it also admitted to making material misrepresentations.
Most shareholder lawsuits have settled before trial, meaning there is little legal precedent in England and Wales on several important issues in such cases, including the status of passive investment funds, which have become large holders of UK stocks.