Effex Capital: NFA used FXCM case to further efforts to eliminate OTC retail FX

Maria Nikolova

Effex Capital alleges that NFA’s actions regarding FXCM and the naming of Effex Capital in the regulatory findings were in favor of swap dealers, including those with NFA board representation.

The legal fight related to the events from February 6, 2017, which led, among other things, to FXCM leaving the US market and the renaming of FXCM Inc into Global Brokerage Inc (NASDAQ:GLBR), continues. One of the most interesting legal cases connected to these events is the one brought by Effex Capital, the company which was embroiled in FXCM’s troubles, as its business relations with the broker were a key factor in the regulatory findings that led to FXCM’s exit from the US.

In brief, Effex Capital and its CEO John Dittami are suing the National Futures Association (NFA) over allegedly false claims about Effex in the materials related to FXCM’s investigation and settlements dated February 6, 2017. Effex wants the court to direct NFA to amend the materials clearing Effex’s name of the allegedly false and misleading claims.

NFA has sought to counter Effex’s accusations referring to its immunity in such cases. Effex’s reply to NFA’s statement is staggering. The document, seen by FinanceFeeds, alleges that NFA used FXCM’s case to disseminate false information about Effex and thus to push further into destroying the OTC retail FX industry.

In the document, dated August 21, 2017, Effex Capital and Mr Dittami argue that:

“The National Futures Association exceeded its delegated authority by using its investigation of Forex Capital Markets, Inc. as a pretext to disseminate false and defamatory information regarding Plaintiffs in furtherance of its self-serving efforts to eliminate over-the-counter (“OTC”) retail forex trading.”

According to Effex, NFA used such tactics because “Congress has soundly rejected NFA’s attempts to acquire jurisdiction over ECPs such as Effex which engage in over-the-counter (as opposed to on-exchange) forex trading with other ECPs and large financial institutions.”

The document further says that NFA made the claims about the relations between Effex and FXCM and stated the name of “Effex Capital” in order to protect the business interests of registered swap dealers, many of which were represented on NFA’s board of directors and business conduct committee.

Effex then states that NFA’s board of directors is comprised 65% of insiders with the balance of the directors being purportedly independent. In reality, the document says, the purportedly independent board members are actually former executives of swap dealers and other insiders. The swap dealers, including those with board representation, had direct economic interest in the downfall of its competitor Effex.

“By defaming and falsely accusing Effex of wrongdoing, NFA acted in the interest of its members which were in direct competition with Plaintiffs, thereby precluding any finding of functional autonomy.”

The legal proceedings continue at the Illinois Northern District Court. The case is captioned Effex Capital, LLC et al v. National Futures Association et al (1:17-cv-04245).

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