CFTC makes clear its stance in lawsuit about FXCM publications

Maria Nikolova

The regulator notes a review of NFA’s disciplinary decision would be possible only in extraordinary circumstances.

After getting another extension to make clear its opinion in a lawsuit targeting the National Futures Association (NFA), the Commodity Futures Trading Commission (CFTC) has submitted the relevant documents with the Seventh Circuit U.S. Court of Appeals.

The lawsuit concerns publications from February 6, 2017, when the CFTC and NFA unveiled settlements with Forex Capital Markets, LLC (FXCM), in a move that led to the exodus of the broker from the US retail FX market.

In the documents filed with the Court on April 8, 2019, the CFTC explains that it has an interest in this case because (1) the Court invited it to file an amicus brief; and (2) the district court addressed an issue affecting the Commission’s statutory responsibilities with respect to review of NFA disciplinary proceedings.

On February 6, 2017, NFA issued a complaint against FXCM. The complaint alleged, among other things, that FXCM engaged in fraudulent advertising in violation of NFA rules. The complaint alleged that FXCM advertised that it used a “No Dealing Desk” model in its retail forex transactions, whereas, in fact, according to the NFA complaint, FXCM directed many of its trades to a liquidity provider, Effex Capital, LLC, which FXCM established and controlled. The complaint further alleged that Effex paid rebates to FXCM and engaged in abusive execution tactics that benefitted Effex and FXCM at the expense of customers.

FXCM settled the NFA complaint without admitting or denying the allegations.

The complaint, decision, and an accompanying narrative and press release were posted on the NFA website and reported in the press.

On June 6, 2017, Effex and its CEO, John Dittami, sued NFA and various NFA employees in the Illinois Northern District Court. Effex and Dittami alleged that NFA’s complaint against FXCM and associated documents included false statements regarding Effex and Dittami; and that NFA’s process of investigating and settling with FXCM provided Effex and Dittami with no way to defend themselves. Effex and Dittami asserted a number of state and federal legal claims, including:

  • defamation;
  • violation of due process;
  • interference with business relationships;
  • interference with economic advantage; and
  • violation of the Illinois Trade Secrets Act.

Effex and Dittami sought relief in the form of money damages and an injunction ordering NFA to (1) remove the FXCM complaint and related documents from its website or redact references to Effex and Dittami and (2) issue a release correcting the allegedly false statements.

NFA filed a motion to dismiss. One of NFA’s arguments was that Effex and Dittami were required to, but did not, exhaust administrative remedies by appealing to the CFTC.

In a decision issued on April 5, 2018, the district court dismissed Effex and Dittami’s complaint for failure to exhaust administrative remedies.

Effex and Dittami appealed. Following briefing and oral argument, this Court issued its order inviting the CFTC to file an amicus brief.

In its brief, the CFTC notes that rules and precedent support the conclusion that non-parties to NFA disciplinary proceedings cannot appeal NFA decisions in such proceedings to the CFTC as a matter of right. However, they may request the Commission to waive its usual rules to permit review in limited circumstances at the discretion of the Commission.

Under the law, third parties who did not take part in proceedings before the NFA may sometimes become parties to appeal proceedings before the Commission. These rules authorize “limited participation” by such persons with the permission of the Commission. Persons seeking such permission must demonstrate that their intervention will “serve the public interest.”

However, the CFTC notes that efficiency dictates that third parties should not be able to routinely obtain review of NFA disciplinary actions when the subjects of those actions do not want such review. But it is reasonable for the CFTC to reserve the power to permit third parties to obtain review in unusual situations where such review may be needed to avoid a serious injustice.

The lawsuit continues at the Seventh Circuit U.S. Court of Appeals. Responses from NFA and Effex are due by April 29, 2019.

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