Eric Schneiderman turned heads on Wall Street late last month when the New York Attorney General sued Barclays for misrepresenting what went on in its LX dark pool. Specifically, the AG alleged that Barclays portrayed LX as a haven for investors wishing to avoid high-frequency traders, when in fact the venue had rolled out the red carpet for the HFT crowd.

I am not an institutional market participant and as far as I know my occasional online retail trades have never executed on LX, so I hold no opinion on whether Barclays is guilty as charged or if Schneiderman is all wet. Like most everyone else, I expect to learn more as the case unfolds over the coming weeks and months.

But one aspect of Schneiderman’s suit struck me as unusual and a potential indication of enforcement overreach. I’m referring to the fairly heavy deployment of marketing materials as building material for his case.

To wit, in listing Barclays’ alleged transgressions, Schneiderman’s first two entries start with “Barclays falsified marketing material…” and “Barclays falsely marketed…”, and the bank’s marketing efforts are liberally referenced thereafter in support of the allegations.

Now I believe that companies across all industries should be truthful in their communication with existing and prospective customers. But at the same time, I didn’t just fall off the turnip truck — I know marketing is fluff, and I take marketing with a grain of salt. So how deeply should government dive in enforcing the veracity of corporate marketing materials? If this is a new trend, then a lot of companies in a lot of industries need to rewrite their websites, sales pitches, brochures and pamphlets, because attorneys general will be reading.

One accomplished trading technologist, who is not associated with Barclays and whom I do not believe is an apologist for Wall Street, noted “marketing material is marketing material. People use it to try to grab attention.”

This veteran markets professional used the term “witch hunt” to describe what he sees as excessive government meddling in the workings of markets, and he also said Schneiderman’s case is sensationalized and the AG is demonstrating personal hubris.

Schneiderman may be following the playbook of his predecessor Eliot Spitzer, who moved aggressively against Wall Street — one of America’s favorite villains — in the early 2000s as a springboard to a successful 2006 gubernatorial run.

Maybe Schneiderman will hit the Barclays ball out of the park and be credited with helping to “clean up” Wall Street. Or maybe it will be shown that there’s no “there” there, Barclays will get a slap on the wrist if that, and the case will go down as a loss for the AG and a waste of taxpayer resources.

But whether the outcome is either of those scenarios or (most likely) somewhere in between, aren’t institutional investors and traders — for whom sophisticated transaction cost analysis has become de rigueur — able to judge the efficiency of their own trade executions on Barclays LX, and vote with their feet if they don’t like it?

“Trust, but verify,” the market source said. “Trust your agents, but verify that they do the right job. The beauty in the world of electronic trading is that no matter how complex markets are, you have the data.”

Featured image via Dollar Photo Club