Ex-FXCM clients suffer defeat in Court as lawsuit against Effex Capital dismissed
New York Southern District Court dismisses complaint against Effex Capital, involved in the US exit of FXCM.
A legal action targeting Effex Capital, the company embroiled in FXCM’s exit from the US retail Forex market, was terminated on February 1, 2019, after the New York Southern District Court issued an order against former clients of FXCM Inc.
Let’s recall that this lawsuit was launched by Arthur P. Cardi, Bikram Randhawa, Mark Govers, Rosimara Tadrous, Steven Plunger – former customers of FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR).
The plaintiffs have brought the action on behalf of themselves and all other former customers of FXCM Inc; Forex Capital Markets, LLC; and FXCM Holdings, LLC, in an effort to recover the damages they and the Class suffered as a result of the alleged fraud perpetrated by Effex Capital, Dittami and FXCM. The customers say they were led to believe that FXCM provided a conflict-free retail Forex trading platform, whereas, in fact, the opposite was true: FXCM had a hidden relationship with Effex, which held positions opposite to orders placed by the Class and could (unlike other liquidity providers) view non-public details of those orders, and then engaged in abusive practices—all to the benefit of Effex, Dittami and FXCM.
The plaintiffs argue that Effex was central to this misconduct, as it was the secret liquidity provider that FXCM was penalized for concealing from its customers. Effex and Dittami should be held responsible for the damages they caused to the Class during the seven-year Class Period—which far exceed those identified by the CFTC, according to the ex-clients of the broker.
The plaintiffs stress that Effex deprived them of positive slippage and gave them negative slippage—when it would benefit Effex’s and FXCM’s bottom line. Two of the most egregious practices were the Hold Timer, and Previous Quote functions. Effex used both of these abusive practices to harm FXCM’s customers. Furthermore, all trades that were routed to Effex were denied best execution and the possibility of a better price—i.e. positive slippage—because the other liquidity providers were not allowed to compete to provide a better price to the traders.
The plaintiffs insist that Effex and Dittami knew FXCM intended to violate the CEA because they operated hand-in-glove. Also, without Effex’s participation, FXCM could not have violated the CEA. Because FXCM created Effex to secretly trade against its customers, Effex did more than “provide normal clearing services to a primary broker.”
The Court, however, has agreed to grant the defendants’ motion to dismiss. As per the Order issued on Friday, February 1, 2019, the plaintiffs have failed to plead with particularity violations of the CEA and have also failed to state a claim.
The Court ruled that the plaintiffs’ complaint does not indicate that the ex-FXCM clients suffered any actual damages as a result of the alleged fraud run by Effex and its CEO John Dittami. Instead, the plaintiffs are said to have produced “speculative and unsupportive statements”. Pointing to rebate payments as equal to losses suffered by former FXCM customers is not indicative of any damage, the Court determined.
Furthermore, the former clients of FXCM have not alleged sufficient nexus between them and Effex or Dittami. Effex or Dittami were not parties to any contracts with FXCM clients nor did they have direct dealings with them. Hence, the plaintiffs were found to have failed to made the requisite showing for Effex’s unjust enrichment.
The plaintiffs have 30 days to file a notice of appeal in case they wish to do so.