Barclays, Credit Suisse Settle with Record Fines for Misleading Investors

Dark_pools_Barclays_SEC_HakanDahlstrom

The feds have notched another win against predatory banking tactics. In what is arguably the largest settlement of its kind, Barclays and Credit Suisse agreed in January to pay a total of $154.3 million in fines and interest for misleading dark pool investors.

The Securities Exchange Commission (SEC) and the New York State attorney’s office (NYAG) announced the settlement last week, which includes an admission by Barclays that it broke the law when it told investors that they would be protected from predatory tactics. Barclays has agreed to pay a total of $70 million to the SEC and NYAG, while Credit Suisse agreed to pay $30 million in penalties each to the SEC and the NYAG, as well as $24.3 million in disgorgement and prejudgment interest to the SEC.

Dark pools are private trading venues that are not open to the public and often involve broker- or agency-owned block trades. While dark pool liquidity schemes offer several advantages to both lenders and investors, they have also come under increased scrutiny by SEC and state regulators. The recent string of indictments and fines against multinational trading firms follow assurances by regulators that there would be more monitoring of private trading venues. In July, ITG agreed to pay $20.3 million in fines for its subsidiary’s role in trading against its dark pool investors. It was the largest series of fines to be lodged against an investment firm, but it wasn’t an isolated case. BNP Internal Exchange, UBS and Liquinet Holdings have all been fined for amounts ranging from $1 million to $14 million over the past year.

While the SEC has approved a “test” run of a new trade-at rule that it believes may steer more traffic away from dark pool venues, the British government has taken a different tact when it comes to those banks that have been implicated and found guilty of misleading trading. In October, the U.K. Treasury Department introduced a clause in its finance bill that limits the ability of banks to claim deductions for compensation payments they were forced to make for illegal transactions. This week the chair of the department, Andrew Tyrie, called for further restrictions that would prohibit such banks from charging off other costs they may have incurred as a result of illegal trading. That includes the costs incurred overseas should they be implicated in a scandal in the U.S.

The federal and state fines levied against Credit Suisse and Barclays demonstrate an effort by regulators to change and monitor trading practices on U.S. soil. But will it be enough? SEC Chair Mary Jo White admitted in November that dark pools present significant challenges for both regulators and investors who may be in the position to take advantage of large block-trading opportunities.

“Among other challenges, it can be almost impossible for an investor to assess adequately the conflicts of interest that can arise for a broker-dealer” that is operating alternative trading systems like dark pools,” White said.

The real question for many investors caught in years of banking scandals, however, is not whether the fines are adequate to match the financial tally of the crimes, but why jail time has not been factored into the penalties for bankers that broke SEC rules. Companies like ITC, which saw its shares plunge precipitously after it was fined, may pay heavily at the trading floor. But the individuals who promoted, ignored or failed to regulate predatory financial practices, some critics argue, may be the last to feel the pinch.

Image: Håkan Dahlström

Jan Lee

Jan Lee is a former news editor and award-winning editorial writer whose non-fiction and fiction have been published in the U.S., Canada, Mexico, the U.K. and Australia. Her articles and posts can be found on TriplePundit, JustMeans, and her blog, The Multicultural Jew, as well as other publications. She currently splits her residence between the city of Vancouver, British Columbia and the rural farmlands of Idaho.

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