FXCM directors & officers said to be withholding nearly 2,000 documents from shareholders

Maria Nikolova

The documents concerning the Leucadia loan and the sale of FXCM assets to pay for the loan are among those at the heart of the dispute.

Global Brokerage Inc (OTCMKTS:GLBR), formerly known as FXCM Inc, is refusing to produce documents requested by shareholders, according to the latest filings with the New York Southern Bankruptcy Court.

Global Brokerage submitted its official objection to a motion by Brett Kandell, a plaintiff in a derivative shareholder lawsuit, that sought to compel the company to produce 26 categories of documents many of which had been withheld by the former and current directors and officers of the broker.

(“FXCM”, as defined in Court filings, means Global Brokerage Inc. f/k/a FXCM, Inc. and (a) any of its partners, parents, predecessors, divisions, branches, subsidiaries, affiliates, parent companies and any of their past or present directors, boards of directors, committees, officers, agents, employees, representatives and attorneys; and (b) any other person or entity purporting to act on their behalf. – Ed.)

According to the documents submitted by Global Brokerage’s Counsel on Friday, July 20th, the company is not willing to produce all documents requested by the shareholders. In particular, the broker says it is not obliged to produce the Privileged documents, which are said to be protected under the attorney-client privilege.

Global Brokerage’s Counsel explains that there are nearly 2,000 documents that the “Individual Defendants” have redacted or withheld on the basis of the attorney-client privilege.

Let’s recall that the Individual Defendants are Dror Niv, William Adhout, Kenneth Grossman, David Sakhai, Eduard Yusupov, James G. Brown, Robin Davis, Perry Fish, Arthur Gruen, Eric Legoff, Bryan Reyhani, and Ryan Silverman. They are accused of breach of fiduciary duty, contribution and indemnification, waste of corporate assets, and unjust enrichment.

Global Brokerage does not mention any examples of the “privileged documents” that are at the heart of the dispute, but FinanceFeeds has examined the email correspondence of Israel Dahan, counsel for Global Brokerage, and Jorge Amador, counsel for Brett Kandell, dated February 26, 2018. It turns out that the parties are mostly arguing about the documents concerning any alternative proposals for FXCM’s rescue after January 15, 2015, as well as about documents related to FXCM’s asset sales to repay the Leucadia loan.

“Request 15: Documents concerning any sale of FXCM assets by FXCM to pay for the Leucadia Loan and/or the MOU”.

Israel Dahan, Email dated February 26, 2018:

“With respect to this request, we stated that we do not believe that the process for any asset sales is at issue in the case as opposed to the actual asset sales themselves, which are publicly disclosed. You stated that you believe that the sale process of the Company’s assets speaks of the fairness of the terms of the loan, to which we disagree. Alternately, you stated that such information would inform your damages claim. We stated that we believe that any damages claim can be supported by the publicly filed information regarding these asset sales. You agreed to think further about your positions in this request.”

Jorge Amador, Email dated February 26, 2018:

“We still believe that we are entitled to such documents as they go to the entire fairness of the Leucadia transaction and damages. Although the sale is disclosed, the disclosure provides no information regarding whether there were other interested buyers, was it sold at a gain or loss, was it sold to a related party, etc.”

Let’s recall that the Complaint by Brett Kandell questions the fairness of the Leucadia deal with FXCM after the “Flash crash” on January 15, 2015.

Neither UBS nor any other investment bank provided advice as to debt financing or the loan FXCM eventually obtained from Leucadia. The Complaint also alleges that while UBS had been unable to secure equity financing from other parties with whom it or the Company had negotiated, “UBS and the Company failed to propose a loan from these parties similar to the Leucadia Loan, but with better terms for the Company.”

Shortly after the preliminary vote on the Leucadia deal, it emerged that Steven Cohen Asset Management (SACAM) was interested in offering a more advantageous deal to FXCM than that proposed by Leucadia. But this deal later fell through because Steven Cohen, SACAM’s head, could not obtain from the regulators “certain assurances he was seeking due to prior regulatory violations by his firm.”

The final board meeting in the immediate aftermath of the Flash Crash took place approximately four hours later, with the Leucadia loan approved.

Mr Kandell alleges causes of action against the Individual Defendants for various breaches of their fiduciary duties to FXCM, indemnification and contribution, waste, and unjust enrichment.

Count I alleges that the Defendants breached their fiduciary duties of loyalty and care by allowing the Company to violate Regulation 5.16; approving the Leucadia loan, the severance agreements and bonus plans, and the Rights Plan; failing to obtain the services of a financial advisor to opine on the merits of the Leucadia loan or other debt financing options; and exposing the Company to undue risk.

Count II is brought against the insider defendants (Niv, Sakhai, Adhout, Yusupov, and Grossman) for breaching their fiduciary duties by “causing the Company to enter into the Leucadia Loan and the MOU, despite the fact that the terms of the Leucadia Loan were grossly unfair to the Company.”

Count III seeks indemnification and contribution from the Defendants in the event that FXCM is found liable for conduct for which the Defendants are responsible.

Counts IV and V allege that the Leucadia loan, the severance agreements and bonus plans, and the MOU constituted a waste of corporate assets.

Finally, Count VI asserts that Niv, Sakhai, Adhout, and Yusupov were unjustly enriched as a result of the severance agreements and bonus plans.

Now, the dispute about the Leucadia deal and the withheld documents influences the planned closure of Global Brokerage’s bankruptcy. Mr Kandell wants the Bankruptcy Court to direct the individual defendants in his case and the Debtor (that is, Global Brokerage) to produce the withheld documents. A hearing on the matter is expected late this month.

Read this next

Digital Assets

Zumo launches B2B ‘Crypto-as-a-Service’ solution for brokers

The new product, Zumo Enterprise, also features an embedded ESG and net zero strategy.

Technology

Top Tools to Add to Your Trading Platform to Delight and Retain Traders

The online trading boom that started during the pandemic-led lockdowns is abating. This is in part due to sustained market volatility which seems to be discouraging new investors. For example, day trading volumes in the US for retail investors declined in the last 2 quarters of 2021.  

Technology

Embedded finance platform Alviere taps Marqeta for branded card issuance in Europe and UK

Alviere has recently raised $70 million to fuel the ongoing expansion across the European region and the United Kingdom.

Retail FX

Overcharts partners with dxFeed for CME Group Market Depth

“More and more traders are using Market Depth while conducting volume analysis. Its primary function is to help traders identify potential support and resistance levels.”

Digital Assets

CoinGecko expands collaboration with CER.live security rating

CoinGecko, one of the earliest crypto data aggregators, has integrated the security score data from the CER.live rating. The trust assessments given to crypto projects will be integrated into their pages on CoinGecko website to draw users’ attention to the importance of security.

Metaverse Gaming NFT

Klaytn taps Parity Technologies to build infrastructure for Klaytn-Substrate

Klaytn has initiated a collaboration with blockchain infrastructure company Parity Technologies to strengthen its tech stack and meet the demands of enterprises looking to harness the crypto technology.

Retail FX

US Retail FX brokers suffer steep fall in client deposits, Trading.com racked up $46K

Retail FX deposits at US brokerages, which have been struggling to eke out a profit in a strict regulatory environment, dropped in March 2022 by $35 million, CFTC data showed.

Retail FX

eToro supports Immutable X (IMX), Livepeer (LPT) and Cartesi (CTSI)

Israeli social trading network eToro has added support for trading three new tokens. Immutable X (IMX), Livepeer (LPT) and Cartesi (CTSI) are the next coins to join eToro’s list of featured digital assets.

Executive Moves

LiquidityBook hires Fintech veteran Jonathan Cross to lead EMEA business

LiquidityBook, a provider of FIX and OMS trading solutions for both the buy and sell-side, has added Jonathan Cross to its business team for the EMEA region.

<