Effex Capital, embroiled in FXCM’s US exit, gets more time to respond to NFA arguments

A public announcement about a disciplinary action against a Forex broker may result in a variety of consequences, including litigation. This has been proven by the case launched by Effex Capital and its CEO John Dittami against the National Futures Association (NFA) following the publication of several documents concerning the disciplinary action taken against FXCM back in February 2017. Effex’s relations with FXCM played a crucial role in the regulatory decisions concerning the broker, which agreed to ultimately exit the US retail Forex market.

What do Effex and its CEO want? An award of $10 million over alleged damage caused to them by the announcement, as well as removal or editing of the materials concerning the said action against FXCM.

But the Illinois Northern District Court dismissed the case in April this year, saying that Effex should have exhausted all other means of solving the disagreement it had with NFA, including taking the matter to the CFTC.

Effex appealed from the ruling and the appeal case now proceeds at the Seventh Circuit U.S. Court of Appeals. In fact, if we consider the latest court filings, the whole story is becoming more and more complicated, even by the admission of Effex Capital itself.

On Friday, October 12, 2018, Effex asked the Court for more time to prepare its response to NFA’s brief. NFA, as expected, has argued that the District Court’s ruling must be confirmed and that Effex should take the matter to the CFTC instead of suing NFA. Effex sees the matter as more complicated.

In fact, in the Letter in which Effex asks for extra time to prepare its response, Effex’s counsel argues that:

“The extension of time to file Effex’s reply brief is requested based upon arguments raised by NFA in their opening brief which in effect equate to a cross-appeal in an already complex matter”.

“Due to the time I have had to devote to researching the arguments raised by NFA which in essence equate to a cross-appeal, in addition to addressing the counterarguments in their brief I cannot reasonably prepare an adequate brief by the October 24, 2018 deadline, even proceeding with all due diligence”.

The key phrase here is “cross-appeal”. Effex’s counsel does not elaborate on which statements in NFA’s brief amount to “cross-appeal”. In fact, the single time that NFA mentions these words in its brief is to say that “No cross-appeal is necessary…”.

Let’s recall 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.

On Friday, October 12, 2018, Effex got the requested time extension it had requested. The Court agreed that the appellant’s reply brief is due on or before November 14, 2018.

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