Barclays is also facing investigations along with other major lenders over possible manipulation of foreign exchange trades.
London: Shares in Barclays slid five percent in trading on Thursday after New York prosecutors sued the British bank for fraud -- the latest blow to hit the scandal-hit company.
Barclays was down 5.04 percent at 218.42 pence on London`s FTSE 100 index, which was up 0.02 percent to 6,735.18 points in mid-morning deals.
Prosecutors on Wednesday said Barclays had promised clients that it would protect them from aggressive high-speed trading firms in so-called `dark pools`, but at the same time took steps that benefited these firms.
"The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit," Attorney General Eric Schneiderman said on Wednesday.
A Barclays spokesman said the bank was cooperating with Schneiderman, the top prosecutor for New York state.
"We take these allegations very seriously," he added.
The suit comes amid criticism that high-frequency traders skim profits from clients who order a stock at one price, only to end up paying more than the quoted amount. This is after the high-frequency firm pushes up the price through a series of lightening-quick transactions.
Such aggressive tactics are often characterised as predatory behaviour.
"Barclays shares have plummeted five percent, as once again investors pay the price for banking misdemeanours," said Will Hedden at IG traders.
"This is another chapter in the story of US lawmakers versus high-frequency trading, with cynics also suggesting it is part of a continued assault on European investment banks."
The fraud allegations come one month after Barclays was fined more than £26 million ($44 million, 32.5 million euros) by British regulators after a former trader at the bank attempted to manipulate the price of gold.
Barclays, which was at the heart of the Libor interest-rate rigging scandal in 2012, is also facing investigations along with other major lenders over possible manipulation of foreign exchange trades.
Barclays has struggled to recover from the Libor fallout and recently said it would shrink its investment bank in a radical restructuring that will axe 19,000 jobs across the entire group by 2016.
The bank`s chief executive Antony Jenkins is on a mission to reduce the influence of Barclays` investment bank since replacing Bob Diamond -- the much-maligned former chief executive who was forced to resign over the Libor scandal.
It is also creating a "bad" bank for non-core assets with a total value of £115 billion that will be sold or simply allowed to run down.
The Libor scandal erupted two years ago when Barclays was fined £290 million by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009. Euribor is the eurozone equivalent of Libor.