Effex Capital denies liability for FXCM’s actions

As a case brought by former customers of the US business of FXCM continues at the New York Southern District Court, Effex Capital, the company implicated in the brokerage’s exit from the US retail Forex market has sought to dismiss claims against it.

Let’s recall that the case, captioned Nguyen v. FXCM Inc. et al (1:17-cv-02729), is a class action brought on behalf of all customers of FXCM who, between March 1, 2010 and February 6, 2017, placed trade orders through FXCM’s “No Dealing Desk” platform while FXCM publicly maintained that it had no conflict of interest in the outcome of that trade. The case also targets FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR), Forex Capital Markets LLC, Global Brokerage Holdings, Drew Niv and William Ahdout.

On Tuesday, March 27, 2018, Effex Capital and its CEO John Dittami filed a Motion to Dismiss with the Court.

Effex and Dittami argue that they did not contribute to FXCM’s alleged failure to disclose its relationship with Effex and to FXCM’s alleged representations that its NDD platform had no conflicts of interest.

“Neither Effex nor Dittami could have aided and abetted such violation because neither Effex nor Dittami had a duty to disclose anything to plaintiffs. Effex cannot be vicariously liable for FXCM’s statements and actions”, the defendants say.

Even assuming that FXCM committed a fraud, the Complaint is said to have failed to allege any specific actions undertaken by Dittami in furtherance of the alleged fraud. The defendants stress that the Complaint merely alleges Dittami designed a trading system while an employee of FXCM. However, such action was taken prior to any of the alleged bad acts. There is no inherent fraudulent act, actual or implied, arising from the creation of a trading system – such a system could be used in a variety of ways or even mothballed. As a result, according to Effex and Dittami, it is illogical to conclude that Dittami designed the trading system with the intent to harm FXCM’s customers.

The defendants also challenge the allegations relating to Effex’s fraudulent intent. The defendants say that:

“Although the complaint alleges that Effex used Last Look, Hold Timer and Prev Quote, the use of such trading tactics are legal. In addition, Effex had no duty to disclose its trading strategies to Plaintiffs and therefore cannot have wrongfully concealed such actions from Plaintiffs”.

According to Effex, the Rebate Payments it received do not exhibit fraudulent intent because: (i) Effex could not control where FXCM routed its trades; (ii) Rebate Payments are a legal and accepted industry practice; and (iii) the making of such payments in no way harmed Plaintiffs.

Also, Effex says that FXCM’s customers have not properly alleged that either Effex or Dittami were the proximate cause for their purported loss, as the Complaint does not articulate a single trade which caused Plaintiffs to suffer an identifiable loss.

Also, regarding the parts of the complaint referring FXCM’s failure to disclose information to the National Futures Association, the defendants argue that the plaintiffs’s “specious efforts to spin such non-disclosure into a scheme to harm Plaintiffs is misguided and facially insufficient to plead aiding and abetting against Movants”.

Also, the defendants argue that the Complaint fails to allege that FXCM had a contractual obligation to provide best execution because none existed. In the absence of FXCM owing Plaintiffs a fiduciary duty or contractual duty of best execution, Effex and Dittami cannot be liable for aiding and abetting. Even assuming FXCM had a duty of best execution, the broker’s customers are said to have failed to plead that Effex or Dittami aided and abetted such breach as the Complaint fails to either define best execution or how such duty was breached.

The plaintiffs have one month to respond to Effex Capital and John Dittami.