Plaintiffs' class status was preserved Monday by the U.S. Court of Appeals for the Second Circuit in a suit over securities fraud allegations directed at Barclays' “dark pool” trading practice in the United States.

The panel of Circuit Judges Amalya Kearse, Raymond Lohier Jr. and Christopher Droney drilled down further on review standard hurdles for granting a class certification. The panel in Waggoner v. Barclays, 16‐1912‐cv, agreed with defendants that former U.S. District Judge Shira Scheindlin erred in granting status based on the Affiliated Ute presumption, as plaintiffs' claims are primarily based on misstatements, not omissions.

However, the panel declined to accept defendants' other arguments, overall affirming Scheindlin's class status finding.

The suit is an offshoot of Barclay's attempts, post-LIBOR manipulation scandal, to show a discernible change for the better in business practices. Specifically, Barclay's U.S. operations sought to allay concerns among investors in its dark pool alternate system Liquidity Cross, or LX, that it was actively protecting investors, often institutional types operating in the anonymous trade space, from being victimized by high-frequency traders.

To allay concerns, Barclays repeatedly produced material, made public pronouncements, and rolled out services that sought to achieve this aim. For example, the Liquidity Profiling service was supposed to monitor traders and trading to flag high-frequency traders so investors could pro-actively avoid them if they so chose.

In 2014, New York State Attorney General Eric Schneiderman brought Martin Act violation claims against Barclays, alleging the bank's claims about LX protections for investors were false and misleading.

Plaintiffs filed suit, alleging in a second amended complaint that Barclays violated securities laws by making false statements and omissions about LX and Liquidity Profiling.

The appeal came after Scheindlin approved class status for plaintiffs. Defendants argued that Scheindlin wrongly allowed class certification largely over two separate presumptive tests. Both are alternatives to the requirement, under Securities Exchange Act §10(b), that misrepresentations or omissions were relied on.

The U.S. Supreme Court's 1972 decision in Affiliated Ute Citizens of Utah v. United States allows plaintiffs to show reliance through omissions, rather than affirmative misstatements. The panel agreed with defendants that plaintiffs failed the Affiliated Ute test. As the panel noted, plaintiffs allege “numerous affirmative misstatements” against defendants and “focus their claims” as such, and “are therefore not in a situation in which it is impossible for them to point to affirmative misstatements.”

The panel, however, rejected defendants' challenges to Scheindlin's decision that a separate test under the Supreme Court's 1988 decision in Basic v. Levinson satisfied, as an alternative to the Affiliated Ute standard, its own presumption of reliance. Defendants argued that plaintiffs had not made the requisite showing that Barclays' dark pool market was an efficient one, despite expert witness testimony for the plaintiffs to the contrary.

The panel, building on the circuit's decision in In re Petrobras Securities issued earlier this year, restated the court's holding that a particular test for market efficiency is not required, and, rather, that a “holistic analysis based on the totality of the evidence presented” is needed to determine whether plaintiffs satisfy the Basic presumption.

The panel found that the current plaintiffs did, in fact, satisfy the presumption. The district court's decision not to rely on direct evidence under specific testing requirements “fell comfortably within the range of permissible decisions” for the panel.

“Because Barclays is one of the largest financial institutions in the world, it is unsurprising that the market for Barclays' ADS is efficient,” the panel found.

It went on to dismiss defendants' other challenges to Scheindlin's class certification, finding that they failed to rebut the Basic presumption by a preponderance of evidence, and upheld the damages methodology.

Pomerantz partner Jeremy Lieberman represented the plaintiffs-appellees. In a statement, he said he and his clients were gratified with the ruling, adding that the court “unambiguously reaffirmed” its commitment to the kinds of standards reached earlier in Petrobras.

“For too long, Defendants have tried to obscure this guidance by attempting to require arcane event studies at the class certification stage, which had little to do with the merits of the case, or the damages suffered by investors,” Lieberman said. “This decision debunks that effort, providing a far easier and more predictable path for securities class actions plaintiffs going forward.”

Sullivan & Cromwell partner Jeffrey Scott was counsel for the Barclays appellants. He could not be reached for comment.

Barclays

Plaintiffs' class status was preserved Monday by the U.S. Court of Appeals for the Second Circuit in a suit over securities fraud allegations directed at Barclays' “dark pool” trading practice in the United States.

The panel of Circuit Judges Amalya Kearse, Raymond Lohier Jr. and Christopher Droney drilled down further on review standard hurdles for granting a class certification. The panel in Waggoner v. Barclays, 16‐1912‐cv, agreed with defendants that former U.S. District Judge Shira Scheindlin erred in granting status based on the Affiliated Ute presumption, as plaintiffs' claims are primarily based on misstatements, not omissions.

However, the panel declined to accept defendants' other arguments, overall affirming Scheindlin's class status finding.

The suit is an offshoot of Barclay's attempts, post-LIBOR manipulation scandal, to show a discernible change for the better in business practices. Specifically, Barclay's U.S. operations sought to allay concerns among investors in its dark pool alternate system Liquidity Cross, or LX, that it was actively protecting investors, often institutional types operating in the anonymous trade space, from being victimized by high-frequency traders.

To allay concerns, Barclays repeatedly produced material, made public pronouncements, and rolled out services that sought to achieve this aim. For example, the Liquidity Profiling service was supposed to monitor traders and trading to flag high-frequency traders so investors could pro-actively avoid them if they so chose.

In 2014, New York State Attorney General Eric Schneiderman brought Martin Act violation claims against Barclays, alleging the bank's claims about LX protections for investors were false and misleading.

Plaintiffs filed suit, alleging in a second amended complaint that Barclays violated securities laws by making false statements and omissions about LX and Liquidity Profiling.

The appeal came after Scheindlin approved class status for plaintiffs. Defendants argued that Scheindlin wrongly allowed class certification largely over two separate presumptive tests. Both are alternatives to the requirement, under Securities Exchange Act §10(b), that misrepresentations or omissions were relied on.

The U.S. Supreme Court's 1972 decision in Affiliated Ute Citizens of Utah v. United States allows plaintiffs to show reliance through omissions, rather than affirmative misstatements. The panel agreed with defendants that plaintiffs failed the Affiliated Ute test. As the panel noted, plaintiffs allege “numerous affirmative misstatements” against defendants and “focus their claims” as such, and “are therefore not in a situation in which it is impossible for them to point to affirmative misstatements.”

The panel, however, rejected defendants' challenges to Scheindlin's decision that a separate test under the Supreme Court's 1988 decision in Basic v. Levinson satisfied, as an alternative to the Affiliated Ute standard, its own presumption of reliance. Defendants argued that plaintiffs had not made the requisite showing that Barclays' dark pool market was an efficient one, despite expert witness testimony for the plaintiffs to the contrary.

The panel, building on the circuit's decision in In re Petrobras Securities issued earlier this year, restated the court's holding that a particular test for market efficiency is not required, and, rather, that a “holistic analysis based on the totality of the evidence presented” is needed to determine whether plaintiffs satisfy the Basic presumption.

The panel found that the current plaintiffs did, in fact, satisfy the presumption. The district court's decision not to rely on direct evidence under specific testing requirements “fell comfortably within the range of permissible decisions” for the panel.

“Because Barclays is one of the largest financial institutions in the world, it is unsurprising that the market for Barclays' ADS is efficient,” the panel found.

It went on to dismiss defendants' other challenges to Scheindlin's class certification, finding that they failed to rebut the Basic presumption by a preponderance of evidence, and upheld the damages methodology.

Pomerantz partner Jeremy Lieberman represented the plaintiffs-appellees. In a statement, he said he and his clients were gratified with the ruling, adding that the court “unambiguously reaffirmed” its commitment to the kinds of standards reached earlier in Petrobras.

“For too long, Defendants have tried to obscure this guidance by attempting to require arcane event studies at the class certification stage, which had little to do with the merits of the case, or the damages suffered by investors,” Lieberman said. “This decision debunks that effort, providing a far easier and more predictable path for securities class actions plaintiffs going forward.”

Sullivan & Cromwell partner Jeffrey Scott was counsel for the Barclays appellants. He could not be reached for comment.