Barclays Bank Takes Institutional Fraud to a Whole New Level

Recently Barclays was fined $44 million for manipulating the setting of gold prices.

On June 26, Barclays was charged with ripping off its own customers. Currency manipulation, Libor price fixing, front running, insider trading - the list goes on and on - all while the U.S. Securities and Exchange Commission is asleep at the wheel.

It was the New York attorney general who has brought this latest securities fraud lawsuit, not the SEC. Despite her ongoing rhetoric, Mary Jo White, the chairwoman of the SEC, has done little to attack any of these ongoing frauds. If the allegations prove true, Barclays lied to its own customers about how they directed orders and the prices their clients paid.

Photo Credit: The Guardian UK

Fragmentation of the securities markets comes at a price. And that price may well be the hardest thing to discover in so many of these of these off market pools. It is the combatants themselves who wish to keep their trades anonymous, further injecting opaqueness into what is supposed to be a transparent market.

The price discovery mechanism is becoming distorted or even worse, as in the case of the bond market, destroyed. There are grave implications for the inability to "discover" the price of a commodity, stock or bond. If the participants are not getting a fair deal, they will look to alternative forums in which to do business. Already high frequency trading accounts for half of all U.S. trading volume. Moving servers closer to or at the exchange to gain a competitive nanosecond is commonplace.

Allowing predators to enter a closed system, advertised as safe and predator free, so they can feed on the unsuspecting participants is a whole new level of fraud and deceit. The complaint alleges that Barclays falsified marketing material, disclosed sensitive information about other customers to high frequency traders and promised to get the best possible prices for its customers, but instead took steps that maximized the bank's profits and executed nearly all of its customer's orders on their trading system instead of on exchanges or other venues where their customers might have been offered a better price.

I have been writing for years about the travails of the individual investor and the magnitude of fraud they suffer at the hands of the brokerage industry. In the late '80s and mid-'90s Prudential Bache was caught ripping off $8 billion from 400,000 of its own customers. Bank of America, Countrywide Mortgage, Merrill Lynch and Morgan Stanley, to name only a few, have a storied list of defrauded customers. But the cry has always been, "Well that's the retail side, the institutional side would never do anything like that."

In the past few years we have seen fraud upon fraud perpetrated by institutions against one another, a whole new level of wrongdoing and deceit. We are destroying the golden goose for quick profits. Competitive markets are popping up in Singapore, Hong Kong, China and in the U.K. If we don't clean up our markets, end price rigging and the unlawful sharing of inside information, we may find that the reduced trading volume in today's U.S. markets will look like a tsunami compared to the scant trading volume in years to come.

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