New case targets FXCM, Effex Capital

Legal action against FXCM continues to grow in volume, with the latest case targeting what was once a leading US Forex broker filed on April 14, 2017, at the New York Southern District Court. As per the previous FinanceFeeds report, there were four class action lawsuits against FXCM Inc, now known as Global Brokerage Inc (NASDAQ:GLBR) filed at the New York Southern District Court, with the actions naming Dror Niv, Robert Lande and FXCM Inc as defendants.

The case filed on April 14, 2017 (case number 1:17-cv-02729) represents a single plaintiff – Vantalie Nguyen, and names seven defendants:

• FXCM Inc;
• Forex Capital Markets, LLC;
• FXCM Holdings, LLC;
• Effex Capital, LLC;
• Dror Niv;
• William Ahdout;
• John Dittami.

This is the first legal action after the events from February 2017 that targets not only FXCM but also Effex Capital, as well as John Dittami, Effex’s CEO.

Those of you who have monitored closely the developments around FXCM are probably aware that a significant proportion of the findings by US regulators into FXCM’s unfair business practices concerned FXCM’s relations with Effex Capital. The investigation by the National Futures Association has found that contrary to FXCM’s advertising claims about using a No Dealing Desk execution model, the broker routed customer trades to a Dealing Desk model by directing trades to a liquidity provider, Effex Capital, LLC (Effex), that was purportedly independent but which FXCM in fact supported and controlled. In return for the order flow that FXCM directed to Effex, Effex paid rebates to FXCM that amounted at times to as much as 70% of Effex’s profits from FXCM’s order flow.

NFA’s investigation also found that FXCM allowed Effex to engage in abusive execution tactics, which denied FXCM’s retail customers favorable price improvement and benefited Effex and FXCM financially. Unlike FXCM’s other liquidity providers, the bulk of Effex’s profits were directed back to FXCM in the form of rebate payments. Between 2010 and 2014, these rebates amounted to approximately $77 million and accounted for approximately 70% of Effex’s profits from FXCM’s order flow.

Concerning FXCM Holdings’ presence in the list of defendants, let’s recall that the NFA document says that FXCM appeared to have attempted to conceal the rebate payments from NFA or others by directing Effex to pay most of the rebates to FXCM Holdings LLC, a former principal of FXCM and a non-NFA Member.

Regarding Mr Niv and Mr Ahdout, it is useful to recall that NFA’s investigation found evidence that they approved Effex’s use of execution practices that denied customers the benefit of positive price improvement.

Effex’s CEO John Dittami was employed by FXCM starting in 2009 as head of one of FXCM’s trading and market-making divisions. In or around March 2010, Effex was formed as an apparently independent company organized and operated by Mr Dittami. However, FXCM supported and controlled Effex. For instance, FXCM provided Effex with start-up capital in the form of a $2 million interest-free loan.

This brief of NFA’s statement must shed a light on the names present on the list of defendants in this case.

Let’s note that unlike the class action lawsuits we’ve reported about in earlier articles, this case has a different cause. It is not “securities fraud” but “personal property”.

Electronic summons have been issued to defendants and the action has been assigned to Judge Deborah A. Batts.