A spokesman for Barclays, Mark Lane, said in a statement that the bank was cooperating with the attorney general and the Securities and Exchange Commission.
Dark pools, which allow investors to submit buy and sell orders without alerting the broader market to their trading activity, have grown in popularity among big investors looking to execute large orders of stock. Such private trading venues, many of which are operated by banks like Goldman Sachs and Credit Suisse, accounted for 14.8 percent of the stock trading volume in the United States in April, according to Rosenblatt Securities.
The dark pool run by Barclays, Barclays LX, was part of its acquisition of certain operations of Lehman Brothers in 2008. It has grown to become one the biggest dark pools on Wall Street.
Relying on former Barclays employees, as well as documents obtained from the bank, the lawsuit claims that the bank failed to protect investors in its dark pool from trading behavior that it described as "predatory" or "toxic."
One service claimed to be able to "restrict" high-frequency trading firms "interacting with our clients," according to the lawsuit. But Barclays did not apply the monitoring service to the bulk of orders in its dark pool and altered the profiles of certain traders, the lawsuit says, citing an internal document that said the service "may rely on inaccurate information."
Schneiderman also took aim at the bank's role as a brokerage firm. While Barclays claimed it routed client orders to trading venues that offered the best terms, it actually sent almost all orders to its own dark pool first, according to the suit.
In a private presentation to a high-frequency trading firm, the lawsuit says, Barclays revealed that about 90 percent of all orders "are first directed into the dark pool."