Effex Capital argues NFA’s FXCM proceeding was “not credibly about FXCM”

Maria Nikolova

Effex Capital, whose name was embroiled in FXCM’s exit from the US retail FX market, says NFA’s publications of its settlement with the broker, in fact, targeted Effex.

After getting the requested time extension to file its reply to the National Futures Association’s objections to its appeal, Effex Capital has submitted its Reply Brief with the Seventh Circuit U.S. Court of Appeals.

Let’s recall that the dispute at hand is about a series of documents that NFA published in February 2017 – the documents concerned its investigation of Forex Capital Markets Inc (FXCM Inc) and its top management. FXCM Inc settled the matter with US regulators and agreed to exit the US retail FX market. Effex Capital and its CEO John Dittami brought an action against NFA, seeking damages over allegedly false statements made about Effex in the press releases and other narratives the Association published back in February 2017.

After NFA managed to dismiss the Effex case in April this year, Effex appealed from the District Court decision and now the matter is progressing at the Seventh Circuit U.S. Court of Appeals.

Earlier this week, Effex Capital and its CEO John Dittami filed their Reply Brief with the Court. Somewhat disappointingly, the document does not explicitly state why the appellants insist that NFA’s arguments amount to “cross-claims”. At the same time, the document restates previously mentioned arguments. This time, they are taken to extremes.

For instance, Effex and Dittami say that NFA “utilized its investigation (FXCM Proceeding) of FXCM as a vehicle to harm Appellants” and that “NFA published false and defamatory statements about Appellants under the pretext of regulating FXCM”.

Effex and Dittami then continue to explain that they do not, in fact, challenge any disciplinary action taken by NFA, because that was taken against FXCM. But they claim to be challenging NFA’s dissemination of what they see as “false and defamatory statements” against Effex and Dittami.

The appellants say they do not wish to review NFA’s decision about FXCM but rather seek damages. This may be interpreted as: Effex wants money from NFA.

Finally, Effex and Dittami argue that “the FXCM Proceeding was not credibly about FXCM but rather about Effex” over whom NFA had no jurisdiction.

It is worth remembering that NFA’s Decision found one set of violations that stemmed from FXCM’s dealings with Effex: FXCM advertised that it used a “No Dealing Desk” model – using an independent liquidity provider to execute trades – that eliminated a potential conflict of interest between FXCM and customers. NFA’s Decision found that FXCM directed trades to Effex, which “was purportedly independent” but which FXCM actually supported and controlled through various means. It also found that FXCM allowed Effex to engage in execution tactics that were abusive to FXCM’s customers – Hold Timer and Previous Quote.

Also on February 6, 2017, the CFTC issued its own decision concerning FXCM. The CFTC made materially identical findings to NFA’s. The CFTC called Effex “HFT Co” but quoted a 2012 post from Forex Factory, which identifies Effex by name.

The case is captioned Effex Capital, LLC, et al v. National Futures Association, et al (0:18-cv-01914).

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