AFX cannot be expected to fund a settlement, counsel says

Maria Nikolova

“Ultimately, and regrettably, it would appear that the settlement failed because the AFX business failed”, says counsel for the firm in a US lawsuit brought by Chapter 11 Trustee for Gallant Capital Markets and Avenica.

The lawsuit targeting AFX Capital Markets, Ltd., AFX Capital US Corp. and STO Super Trading Online continues at the New York Eastern Bankruptcy Court, with the defendants now seeking to rebuff a motion by Chapter 11 Trustee Esther DuVal for sanctions against AFX.

Documents filed with the Court on Monday (October 28th) by the firm representing the defendants (collectively referred to as “AFX”) seek that the Court denies the plaintiffs’ motion. The filing of these documents per se is puzzling, given that, a while ago, the counsel for the defendants has stated she cannot contact AFX because of the administration proceedings in the UK and the license suspension in Cyprus.

But the documents are there, stating that “Defendants, AFX Capital Markets, Ltd., AFX Capital US Corp. and STO Super Trading Online, by their attorneys White and Williams LLP, object to the Trustee’s motion”.

As one might expect, the documents insist that AFX did not act in bad faith and that “the settlement ultimately was undermined by events outside of defendants’ control”. The settlement was proposed in May 2019, but later fell through as AFX failed to make due payments. Hence, the motion for sanctions was submitted by the Chapter 11 Trustee.

According to the documents filed by AFX’s counsel on Monday, October 28, 2019, in the Motion, the Trustee seeks draconian sanctions against the defendants.

The defendants’ counsel also claims that AFX Market is in administration in London, and the license of AFX Capital was suspended by the Cyprus Securities and Exchange Commission (CySEC). According to the defense counsel, “these events have undermined the settlement, insofar as AFX’s management no longer controls AFX”.

“To the extent AFX has no operating business, it could not reasonably be expected to fund an expensive settlement”, the defense counsel says.

Counsel has also reached out to the pertinent foreign authorities. The administrator has been helpful, informing counsel that it has taken control of AFX Markets’ servers and premises, and sharing additional information. CySEC, however, has stated only that an investigation is underway, but otherwise has declined to provide information or assistance – indeed, it has even refused to provide the name of the investigator in charge.

“Ultimately, and regrettably, it would appear that the settlement failed because the AFX business failed”, AFX’s counsel argues, adding that “while it is unfortunate that failure of the settlement to date has been a result, it certainly does not provide a basis for imposing sanctions”.

Under the Complaint against AFX, throughout 2015 and 2016, Gallant Capital Markets deposited approximately $2.35 million (for its benefit) into a Gallant account maintained at AFX. Within the two-week period prior to Gallant’s commencement of its bankruptcy case, there was a balance of approximately $2.4 million in the Gallant account at AFX. Around that time, Gallant made multiple demands upon Defendants for the turnover of Gallant’s funds—all of which were disregarded.

Nevertheless, AFX withdrew the remaining balance, without authorization and without basis, on the Filing Date – in violation of the automatic stay. This case involves core issues whereby the Trustee is seeking a turnover of Gallant property and recovery of assets of the Gallant estate, and enforcement of the automatic stay.

Read this next

Digital Assets

Revolut receives FCA’s go-ahead to launch crypto trading

British fintech and banking firm Revolut has received a regulatory go-ahead to launch its cryptocurrency services in the UK.

Digital Assets

GBTC share is trading at 36% below bitcoin spot price

Grayscale Bitcoin Trust share has widened its discount relative to the underlying cryptocurrency held in the fund, the highest margin ever since its debut in 2013. Digital Currency Group’s flagship GBTC shares traded at a discount of 35.8% to net asset value (NAV) today.

Digital Assets

Crypto lender Nexo investigated by 8 US state regulators

State securities regulators in New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont are investigating crypto lender Nexo for allegedly failing to register its Earn Interest Product.

Metaverse Gaming NFT

Astar Network’s ad features 329 top brands to support Web3 in Japan

Blockchain innovation hub Astar Network is making strides in promoting the Web3 adoption worldwide. In yet another milestone, the smart contracts platform has run a national newspaper ad in Japan that set a new global record with participation from 329 blue-chip firms.

Digital Assets

Pyth Network welcomes onchain data from crypto market maker Auros

“By sharing our high-frequency trading data with a truly onchain decentralized network, we aim to foster innovation that will lead to better financial solutions for all participants.”

Digital Assets

Tokeny integrates Ownera to boost liquidity of tokenized assets

“The adoption of FinP2P will result in higher liquidity and better access to capital and assets by providing regulated firms with one secure point of connection to multiple digital asset networks across the globe.”

Digital Assets

BingX launches subsidy vouchers to cover user losses in copy trading

“With the introduction of copy trade subsidy vouchers, new users can easily try out trading strategies without incurring losses.”

Digital Assets

Talos expands sales team: Frank van Zegveld, Matt Houston, Hillary Conley

“The extensive leadership and industry expertise of these new hires will enable us to build long-lasting relationships as we continue to build out our global presence in EMEA and beyond.”

Executive Moves

FX and CFD broker Emporium Capital hires industry veteran Robert Woolfe as COO

His past experience within the FX and CFD industry includes top roles at Capital Index, London Capital Group, GKFX, ETX Capital, and IG.  “I’m delighted to be part of the Emporium Capital team and spearheading the brokerages global expansion plans”, he said about the appointment.

<