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

Retail FX

Eurotrader taps MahiMarkets’ cross-asset trading technology for pricing and risk management

Eurotrader has tapped MahiMarkets’ cross-asset trading technology to manage its pricing and risk management on its fully licensed and regulated retail brokerage operation covering forex, stocks, indices, and commodities. 

Technology

STT doubles user base as Sterling OMS adopted by TradeZero, Avenue, Banco C6

Sterling Trading Tech (STT) has announced record growth of its order management system (OMS) offering, doubling its user base throughout the second half of 2022.

Retail FX

CMC Invest announces flexible stocks and shares ISAs amid changes in UK policy

In addition to a flexible ISA, the Plus plan provides members with a USD currency wallet for their general investment account (GIA), alongside the default GBP wallet that comes with all CMC Invest accounts. This means users will hold both a GBP wallet and a USD wallet. Saving customers money on FX fees.

Executive Moves

The Trading Pit snatches Skilling Daniela Egli from Skilling to lead Cyprus operation

“We feel privileged to have Daniela join The Trading Pit and bring her extensive expertise to our prop trading firm. We are confident in The Trading Pit’s ambition to provide the ultimate global trading environment for talented traders to enhance their skills and eventually become professional fund managers.”

Industry News

Worldpay taps SheerID to allow merchants to better target their audiences

SheerID verifies over 2.5 billion people via 20,000 authoritative data sources; provides global insights from hundreds of the world’s leading brands, and never shares or sells customer data.

Crypto Insider

Cardano (ADA) Price For 2022-23: Buy Cardano With NAGAX

Cardano (ADA) is probably one of the most renowned and well-known cryptocurrencies out there at the moment and is currently available on the majority of the crypto exchanges and platforms in the market.

Retail FX

ACY Securities recognized by Salvation Army NSW for its support to charity work

““Sitting in the backyard of those family friends, to see the devastation the floods had brought, was a real eye-opener, and a testimony to the Salvos who were on the ground helping every one of those in need during the recent NSW floods.”

Executive Moves

BNP Paribas announces senior executives of Global Markets Americas division

French bank BNP Paribas has appointed several senior executives to its Global Markets Americas division, demonstrating its ambition to grow its Global Equities, Global Credit, and Global Macro franchises in the region. 

Technology

Match-Trade expands partnership with Takeprofit Tech

California-based FX technology provider Match-Trade Technologies has expanded its partnership with fintech software developer Takeprofit Tech.

<