Derivative stockholder lawsuit targeting Global Brokerage and Drew Niv may be close to its end

A lawsuit brought by Brett Kandell, a stockholder of FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR), may be close to its end, as the parties in the case have reached a settlement. The notice concerning the agreement, which has yet to be approved by the Court, has been published by Global Brokerage. The case concerns the events from January 15, 2015 and the steps that FXCM Inc’s top management took after those events. Put otherwise, the case is about the collapse of the share price of FXCM Inc, the (lack of) fairness of the Leucadia deal and what the management did (not do) properly back then.

Stipulation was entered into as of February 19, 2019, by Plaintiff – Brett Kandell, Defendants – Drew Niv, William Ahdout, Kenneth Grossman, David Sakhai, Eduard Yusupov, James Brown, Robin Davis, Perry Fish, Arthur Gruen, Eric LeGoff, Bryan Reyhani and Ryan Silverman, and nominal defendant – Global Brokerage Inc, formerly known as FXCM Inc.

Under the terms of the settlement, the defendants shall caused to be paid on their behalf $1,550,000 to the broker. That is, the benefits will go to the company and not to the stockholders.

The released claims include, inter alia, all claims related to the events from January 15, 2015, as well as the decision of the Board of Directors of the company to approve the Leucadia loan.

Stockholders who held shares in FXCM Inc (Global Brokerage Inc) as of January 16, 2019 and who continue to hold stock, have the right to object to the proposed settlement. They have the right to be heard at the Settlement Hearing to be held before the Honorable Sam Glasscock III on June 5, 2019, at the Delaware Chancery Court.

Let’s recall what the derivative shareholder lawsuit is about.

Mr Kandell alleges causes of action against the Individual Defendants (the directors of FXCM Inc) for various breaches of their fiduciary duties to FXCM, indemnification and contribution, waste, and unjust enrichment.

Count I alleges that the Defendants breached their fiduciary duties of loyalty and care by allowing the Company to violate Regulation 5.16; approving the Leucadia loan, the severance agreements and bonus plans, and the Rights Plan; failing to obtain the services of a financial advisor to opine on the merits of the Leucadia loan or other debt financing options; and exposing the Company to undue risk.

Count II is brought against the insider defendants (Niv, Sakhai, Adhout, Yusupov, and Grossman) for breaching their fiduciary duties by “causing the Company to enter into the Leucadia Loan and the MOU, despite the fact that the terms of the Leucadia Loan were grossly unfair to the Company.”

Count III seeks indemnification and contribution from the Defendants in the event that FXCM is found liable for conduct for which the Defendants are responsible.

Counts IV and V allege that the Leucadia loan, the severance agreements and bonus plans, and the MOU constituted a waste of corporate assets.

Finally, Count VI asserts that Niv, Sakhai, Adhout, and Yusupov were unjustly enriched as a result of the severance agreements and bonus plans.

Back in September 2017, Vice Chancellor Glasscock published a Memorandum Opinion on the case Brett Kandell v. Dror Niv, et al, in which he stated that an entire fairness review of Leucadia loan to FXCM is appropriate. Back then, the Judge stated:

“I find it reasonably likely that the directors knowingly condoned illegal behavior”.