FXCM never had any ownership interest in Effex Capital, according to legal complaint

Maria Nikolova

In their complaint, Effex Capital and its CEO estimate that damages resulting from the allegedly false NFA claims exceed $10 million.

The allegedly false claims that the National Futures Association (NFA) made against Effex Capital and its principal John Dittami in its complaint against FXCM published in February this year have resulted in damages in excess of $10 million for Effex and its members. The precise estimate of damages sought by Effex in a case against NFA at the Illinois Northern District Court is set to be announced during trial.

FinanceFeeds has already reported of the defamation lawsuit filed by Effex Capital and John Dittami against NFA earlier this week. Now, FinanceFeeds has seen the 30-pages complaint by Effex. Below you can find some details.

  • NFA’s regulatory overreach

The plaintiffs state that NFA exceeded its regulatory powers by publishing false statements against Effex and Dittami in connection with its investigation of FXCM. Neither Effex nor Dittami are subject to NFA’s jurisdiction, the complaint says. Neither Effex nor Dittami had any right to appear, intervene or otherwise participate or appeal the NFA investigation. Nor prior notice was issued to them with regards to the publication of the documents concerning FXCM, Effex and Dittami on February 6, 2017.

  • The ownership

According to Effex:

“FXCM, William Ahdout, Dror Niv and Ornit Niv have: never been members; never had any ownership interest in Effex; never managed or controlled Effex.”

  • Other false claims?

The list of false claims, according to the plaintiffs includes (inter alia):

a. Effex and Dittami “engaged in abusive execution practices that denied FXCM’s retail customers favorable price improvement and benefitted Effex and FXCM financially, and which resembled the asymmetrical price slippage practices for which FXCM was sanctioned by NFA in 2011”;

b. Effex’s relationship with FXCM “amounted to a dealing desk model;”

c. “Effex was controlled by FXCM”; and

d. “In exchange for the order flow directed to Effex, it paid rebates to FXCM that amounted at times to as much as 70% of Effex’s profits.

  • Trade Secrets

Effex says that its proprietary software was developed at its own cost, and utilizes a unique trading strategy comprised of confidential computer source code and trading algorithms which were developed by Dittami. Effex’s creation of customer-specific risk tolerance, choice of inputs, and pricing logic and structures of pricing and risk management which utilize the algorithms constitute Trade Secrets. The NFA complaint allegedly disclosed certain of Effex’s Trade Secrets.

Dealing Desk

The plaintiffs insist that NFA falsely characterized Effex as FXCM’s dealing desk. Effex claims it was not a dealing desk for FXCM, and that payment for order flow did not cause Effex to lose its status as an independent liquidity provider. Effex was taking all risk in its trades and was passing none of such risk to FXCM. The company also says it independently set all prices without any involvement of FXCM. It adds that it had no access to FXCM customer positions or resting orders. It was only awarded execution requests from FXCM if Effex offered best price relative to all other liquidity providers. It insists that there was no correlation between Effex’s profits and losses and FXCM’s profits and losses.

The Damages

The NFA complaint has caused a number of Effex’s existing and prospective counterparts, vendors and prospective vendors to stop completely or to decline to conduct business with Effex and Dittami. Firms have refused to issue positive reviews of Effex or Dittami. Commercial banks have terminated their relationships with Effex, Dittami, the Trust and Dittami’s wife’s IRA.

Also, in relation to the NFA Complaint, a class action was filed in the United States District Court for the Southern District of New York against Effex and Dittami by Vantalie Nguyen.

  • What do Effex Capital and Dittami seek?

Plaintiffs claim to have been damaged in an amount in excess of $10,000,000, with the precise amount to be determined at trial. Plaintiffs also seek punitive damages in an amount sufficient to deter similar actions in the future.

In addition, Effex requests NFA to remove the NFA Complaint, Decision, Narrative and Press Release in question its website or, in the alternative, delete all references to Effex and Dittami in the Narrative and issue a new release. The new release should state that:

(a) NFA did not make any findings against Effex or Dittami;

(b) Effex was not a de facto dealing desk of FXCM;

(c) Effex was not controlled by FXCM;

(d) FXCM was not ordered to make any customer restitution.

The court is currently participating in a Mandatory Initial Discovery Pilot.

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