By Marcus Baram - This story has been updated to clarify that Goldman Sachs was not in talks with Barclays executive Bill White about a job, despite rumors to the contrary.
The dark pool run by Barclays (LONDON:BARC), the venerable British bank sued by the New York attorney general on Wednesday for fraudulent activities related to high-frequency trading, is supervised by an executive who was fired by Goldman Sachs two years ago for negligent oversight of that bank's dark pool.
David C. Johnsen, the director of the bank's Electronic Trading Business Development, was hired at Barclays soon after being fired by Goldman Sachs on March 9, 2012, for poor supervision of its Sigma X dark pool. Johnsen was terminated due to "concerns related to the performance of his supervisory responsibilities," according to the BrokerCheck report maintained by the Financial Industry Regulatory Authority, Wall Street's self-regulator.
Johnsen reported to Bill White, head of the bank's Equities Electronic Trading operation, who was removed from day-to-day responsibilities on Friday to focus on answering questions related to Attorney General Eric Schneiderman's suit.
The lawsuit filed by Schneiderman alleged that Barclays misled investors who sought to trade in its dark pool (a dark pool is a private trading platform often preferred over public stock exchanges such as NYSE and Nasdaq). In the complaint, the attorney general accuses the bank of giving unfair advantages to high-frequency traders, who engage in the controversial practice of making multiple trades in milliseconds, sometimes allowing them to get a sneak peek at other traders’ investing strategies to their own benefit.
Barclays LX, the second-biggest dark pool by trading volume on Wall Street, is also being probed by the Securities and Exchange Commission. In early June, the SEC sent a questionnaire to brokers at Barclays and several other banks asking about their relationships with high-frequency trading firms, according to sources familiar with the matter. Other banks with dark pools, such as Credit Suisse and Goldman Sachs, are also being probed by Schneiderman, as first reported by International Business Times in April.
The flurry of investigations was prompted by the release in late March of best-selling author Michael Lewis’s expose, “Flash Boys,” a critical look at the activities of high-frequency traders and how they have upended Wall Street with sometimes predatory trading strategies based on computer algorithms.
In Schneiderman’s complaint, the attorney general alleges that Barclays lied to institutional investor clients about the number of high-frequency traders in LX, trying to hide the presence of some of the more predatory traders. When some employees objected that Barclays had simply removed some “toxic” high-frequency traders from a client presentation, the company's head of Electronic Trading Business Development, which was Johnsen at the time, replied via email: “The accuracy is secondary to [the] objective of showing clients that Barclays monitors the trading in its dark pool.” Schneiderman tweeted out a portion of that email on Wednesday, calling it an example of "alleged intentional deceit."