(Reuters) - The New York Attorney General is set to file a securities fraud lawsuit against Barclays PLC (BARC.L) for misrepresenting the safety of its U.S.-based alternative trading system, or "dark pool," to investors, according to a source.

The lawsuit, which Attorney General Eric Schneiderman will announce at 4 p.m. (2000 GMT) on Wednesday, alleges that Barclays operates its dark pool to favor high-frequency traders and has actively sought to attract them by giving them systematic advantages over others trading in the pool, the source said.

Barclays declined to comment.

Broker-run trading systems known as dark pools, where participants are anonymous and trading information is hidden until after the trades are completed, are a key focus of Schneiderman's sweeping investigation into the U.S. stock market.

His office is looking into whether dark pools operate in a way that is consistent with how they market themselves, that they have the interests of investors in mind and that brokers directing trades to their own dark pools do so in a way that does not present conflicts of interest.

The probes have been going on for several months to a year, but scrutiny has intensified in recent months following the release of best-selling author Michael Lewis' new book, "Flash Boys: A Wall Street Revolt." In the book, Lewis contends that high-frequency traders have rigged the stock market, profiting from speeds unavailable to others.

The Barclays complaint, which is based on internal communications provided by former employees, says that while the firm told clients it would keep predatory high frequency traders out of its dark pool, it never actually prevented any trader from participating, the source said. In other words, Barclays underrepresented the concentration of high frequency trading.

The complaint also alleges that Barclays falsified marketing material purporting to show the extent and type of high-frequency traders in its dark pool. It further claims that while the firm has said it does not favor its own dark pool when routing client orders to trading venues, it has actually done just that.

Barclays