NY Court reschedules oral argument in “mega lawsuit” against FXCM Inc

Maria Nikolova

The argument in the case launched by investors in FXCM Inc, now known as Global Brokerage Inc, has been set for March 6, 2019.

fxcm

There has been a slight change in the timing of the proceedings in the lawsuit launched by investors in FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR). The New York Southern District Court has rescheduled the oral argument on the defendants’ Motion to Dismiss the case against them.

The argument had initially been scheduled for February 27, 2019, but today Judge Ronnie Abrams signed an order granting a request by the plaintiffs to reschedule the argument. It is now set to happen on March 6, 2019.

This case is labelled as the “mega lawsuit” due to the big number of participants in it. The case targets William Ahdout, Dror Niv, Global Brokerage Inc f/k/a FXCM Inc., and Robert Lande. The lawsuit, which consolidates several actions brought on behalf of FXCM investors, represents a federal securities class action. It was launched 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 plaintiffs seek to recover compensable damages caused by alleged violations of federal securities laws by FXCM and its top executives.

In March last year, the plaintiffs suffered a defeat, as the Court granted FXCM’s motion to dismiss. The fight did not stop there, however. The plaintiffs have filed a second amended complaint, followed by a stark response by the defendants.

The plaintiffs in this “mega lawsuit”, led by 683 Capital Partners, LP and Shipco Transport Inc., allege that FXCM knowingly misled investors in its periodic reports filed with the SEC and other public statements by falsely claiming that its customers who transacted on FXCM’s “No Dealing Desk” platform would be free from conflicts of interest because FXCM would not be on the other side of the trade or have any financial interest in the trade.

However, according to the plaintiffs, FXCM incorporated and funded Effex and installed Dittami at the helm, while continuing to own the trading system, finance the business, and most importantly, maintain its 70% interest in Effex’s trading profits through thinly-veiled contractual arrangements.

The investors argue that FXCM’s financial statements 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 during the Class Period. Given that FXCM was entitled to 70% of Effex’s profits, FXCM was required to (but did not) consolidate Effex’s operations as a variable interest entity. Alternatively, even if Effex were not required to be consolidated, it was still a related party to FXCM and therefore, FXCM was required to (but did not) disclose the related party nature of the business relationship and the amount of profits FXCM was earning from 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, the investors insist.

On February 6, 2017, the CFTC announced in a press release and accompanying Order that it had settled charges against FXCM and its two founders, Niv and Ahdout. The CFTC found that FXCM engaged in false and misleading solicitations of its retail FX customers by concealing FXCM’s relationship with its most important market maker, by misrepresenting that its NDD platform had no conflicts of interest with its customers, and by, essentially, cheating customers through dishonest trade execution. The Settlement imposed a civil penalty of $7 million and banned the Company from operating in the U.S.

This announcement shocked the market and caused the price of FXCM’s securities to lose more than half of their value, damaging FXCM investors.

Read this next

Retail FX

Fullerton Markets Caps Off Stellar Year with Dual Triumph at Gazet International Awards 2023

Fullerton Markets, one of the fastest-growing brokerages in the Asia Pacific, has today announced its remarkable success at the prestigious Gazet International Awards 2023, where it secured two coveted accolades, reinforcing its position as a global leader in multi-asset brokerage and marketing a triumphant end to the year.

Inside View

Are brokers really ready for EMIR Refit and ESMA changes in 2024?

The EMIR Refit and ESMA reporting requirements necessitate a strategic approach from brokers, involving major updates to reporting systems, data collection processes, and internal resources. We spoke with brokers and RegTech providers to learn more about the upcoming regulatory challenges.

Digital Assets

Binance to phase out BUSD support in two weeks

Binance has announced its plans to gradually phase out support for its native stablecoin, BUSD (Binance USD) by December 15, 2023. This move comes after Paxos, the issuer of BUSD, decided to stop minting new tokens.

Web3

Binance Labs invests $3.15M in Open Campus to advance Web3 education

Binance Labs, the venture capital arm of the cryptocurrency giant Binance, has invested $3.15 million in Web3 education platform Open Campus.

Institutional FX

Brighty App unveils EU B2B payment platform amidst exploding market

Brighty App is set to launch its European B2B platform, Brighty Business, this month. This platform is geared towards improving how businesses handle their financial operations, especially in the digital banking and cryptocurrency domains.

Digital Assets

Celsius’ withdrawal process slowed by overwhelming demand

Bankrupt crypto lender Celsius is taking steps to allow certain customers to withdraw their funds. However, some users have reported difficulties in logging in to process their withdrawals, as indicated by posts on various social media platforms.

Digital Assets

Cristiano Ronaldo hit with $1 billion lawsuit over Binance NFTs

Cristiano Ronaldo, the renowned footballer, is facing a class-action lawsuit in the United States over his promotion of Binance, the world’s largest cryptocurrency exchange.

Digital Assets

Zipmex creditors offered 3.35 cents on the dollar payout

Zipmex, a Thai crypto exchange grappling with financial difficulties, has proposed a restructuring plan to repay its creditors.

Digital Assets

FSB warns of risks posed by multifunction crypto-asset intermediaries

The report on Multifunction Crypto-Asset Intermediaries (MCIs) provides an in-depth analysis of these entities which combine various crypto-asset services and products, typically centering around a trading platform. These services can include proprietary trading, investment functions, issuance, promotion, and distribution of crypto-assets, including stablecoins.

<