“Mega Lawsuit” against FXCM alleges market manipulation, fraud

Maria Nikolova

The complaint alleges (inter alia) that Dror Niv, William Ahdout, and Robert Lande, “employed devices, schemes and artifices to defraud”.

Plaintiffs in the “mega lawsuit” against Global Brokerage Inc (NASDAQ:GLBR), formerly known as FXCM Inc, on Monday filed an amended complaint against the broker and 18 other defendants, including directors and senior employees at the brokerage accounting department.

The complaint, seen by FinanceFeeds, makes allegations about fraud, market manipulation and of filing false financial statements with regulators.

First, a quick reminder about how the “mega lawsuit” was formed. It was launched on the basis of four initial actions that were eventually consolidated. These four actions include: Khoury v. FXCM Inc. (No. 17-cv-916), Zhao v. FXCM Inc. (No. 17-cv-955), Blinn v. FXCM Inc. (No. 17-cv-1028), and 683 Capital Partners, LP v. Global Brokerage, Inc. (No. 17-cv-2506).

The “mega lawsuit” has 683 Capital Partners, LP and Shipco Transport Inc. as lead plaintiffs, whereas Sergey Regukh and Brian Armstrong are named plaintiffs. The plaintiffs purchased FXCM securities during the Class Period and were damaged when the February announcements were made by US regulators leading to the collapse in prices of these securities.

The “mega lawsuit” is a federal securities class action on behalf of a class consisting of all persons and entities who purchased or otherwise acquired publicly traded FXCM securities, including FXCM 2.25% Convertible Senior Notes due 2018 and Class A common stock from March 15, 2012 to February 6, 2017 (the “Class Period”).

  • Misleading Financial Statements

According to the complaint, during the Class Period, FXCM’s quarterly and annual reports misrepresented that FXCM had no interest in the trades executed on its NDD platform. FXCM’s financial statements allegedly violated SEC regulations and generally accepted accounting principles (GAAP) for failing to disclose FXCM’s economic interest in, contractual and related party relationship with, and control over, Effex. As a result of FXCM’s failure to properly account for its arrangements with Effex, all of FXCM’s financial statements issued during the Class Period were false and misleading.

  • Fraud

During the Class Period, according to the complaint, Niv, Ahdout, and Lande, individually and in concert, directly or indirectly, disseminated or approved false statements. These defendants are accused of having violated §10(b) of the 1934 Act and Rule 10b-5 in that they “employed devices, schemes and artifices to defraud”.

  • Market manipulation

The complaint states that the FXCM Notes should not have been introduced into the market because they were objectively unmarketable. Contrary to the information represented in FXCM’s SEC filings, FXCM’s U.S. subsidiary engaged in false and misleading solicitations of its retail forex customers and made false statements to the NFA about its relationship with its most important market maker.

“Where, as here, actors introduce an otherwise unmarketable security into the market by means of fraud, they have effectively manipulated the market”.

  • The individual defendants

The group includes Dror Niv, William Ahdout, Robert Lande, Ornit Niv, and Eduard Yusupov. The list also features Kenneth Grossman, the new CEO of Global Brokerage.

The list of defendants also includes all those who ever signed any accounting statements or provided other allegedly misleading information to US regulators. This is why Janelle G. Lester, who was FXCM’s Chief Compliance Officer from December 2012 until approximately July 20, 2016, is on the list of defendants. The name of David S. Sassoon, General Counsel of FXCM since 2002 and Secretary since November 2010, is also among the defendants.

The complaint states that each of the Individual Defendants:

  1. directly participated in the management of the Company;
  2. was directly involved in the day-to-day operations of the Company at the highest levels;
  3. was privy to confidential proprietary information concerning the Company and its business and operations;
  4. was directly or indirectly involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein;
  5. was directly or indirectly involved in the oversight or implementation of the Company’s internal controls;
  6. was aware of or recklessly disregarded the fact that the false and misleading statements were being issued concerning the Company; and/or
  7. approved or ratified these statements in violation of the federal securities laws.
  • Damages

The plaintiffs are seeking an award of compensatory damages in favor of plaintiffs and the other class members against all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial.

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