Former FXCM officers face new lawsuit over causing broker to lose $750m in market capitalization
Drew Niv, William Ahdout, Eduard Yusupov and other ex-members of FXCM’s top management are alleged to have created a culture of lawlessness within the broker.
FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR), has lost $750 million, or 99% of its market capitalization since mid-2013 as a result of the wrongful actions of its directors and officers, a new complaint filed with the New York Southern District Court says.
The complaint was filed on Monday, March 19, 2018, by Ryan Spaulding, a stockholder of the broker. The case targets Dror Niv; William Ahdout; James G. Brown; Robin E. Davis; Kenneth Grossman; Arthur Gruen; Robert Lande; Eric LeGoff; Janelle G. Lester; David Sakhai; Ryan Silverman; and Eduard Yusupov.
Global Brokerage, Inc. formerly known as FXCM, Inc. is a nominal defendant in this case.
In fact, the case is unique in that it actually proposes measures to remedy the situation at the company. Inter alia, the plaintiff is asking the Court to direct FXCM to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws, including putting forward for stockholder vote resolutions to amendments to the company’s By-Laws or Articles of Incorporation and taking such other action as may be necessary to place before the stockholders for a vote the following Corporate Governance Policies:
A proposal to strengthen the company’s controls over legal and regulatory compliance;
A proposal to strengthen the company’s controls over related party transactions;
A proposal to strengthen FXCM’s oversight of its disclosure procedures;
A proposal to strengthen the Board’s supervision of operations and develop and implement procedures for greater stockholder input into the policies and guidelines of the Board;
A provision to permit the stockholders of FXCM to nominate at least three candidates for election to the Board.
The individual defendants are accused of waste of corporate assets, breach of fiduciary duty and unjust enrichment.
In particular, the complaint mentions the events from January 15, 2015; the deal with Leucadia National Corp. (NYSE:LUK); the actions of the US regulators from February 2017; and the filing by Global Brokerage Inc for bankruptcy.
According to the complaint, the Board was responsible for FXCM’s violation of Regulation 5.16 by allowing FXCM to illegally make guarantees against losses to the company’s retail FX customers. Following the events from January 15, 2015, the company was exposed to more than $276 million in negative customer balances. The policy of not collecting these negative balances left the company on the hook. The Rights Plan adopted by the broker on January 30, 2015 was pretty self-serving, the complaint alleges.
Regarding the events from February 2017, when the NFA and the CFTC exposed FXCM’s undisclosed relationship with Effex Capital and challenged the Non Dealing Desk business model of the broker, the complaint notes that these developments hit the market capitalization even further taking it down to $19 million.
In addition to the severe market capitalization loss, the actions of the individual defendants are also said to have caused other damage to the broker. They have marred the reputation of the company, thus impairing its ability to raise equity capital or debt. Moreover, the broker continues to expend significant sums of money on class action lawsuits, on expenses associated with the waiving of negative customer balances, and the costs for compensation to the defendants who have actually breached their duties to FXCM.
The plaintiff seeks, inter alia, awarding to FXCM restitution from the defendants.
The case is captioned Spaulding v. Grossman et al (1:18-cv-02461).
