Services Agreement between FXCM and Effex sparks plaintiffs’ reaction in securities class action
Investors suing FXCM argue that the Court should disregard a number of documents submitted by the broker as extraneous.
The “mega lawsuit” against FXCM and a number of its top executives continues at the New York Southern District Court, with the latest point of contention being whether copies of the “Services Agreement” between FXCM and Effex Capital should be considered by the Court or not.
The plaintiffs, who are purchasers of FXCM securities, had argued that the defendants make a number of claims concerning the “Services Agreement,” but had at no point filed this agreement publicly, nor had they attached this purported agreement to their motion papers. “If Defendants decline to supply the Court with the relevant document, it is entirely inappropriate for them to argue on a motion to dismiss that its contents contradict Plaintiffs’ allegations”, the investors argued back in September 2017.
According to the investors, the “order flow” payments made by Effex Capital to FXCM are “a complete sham”. From 2010 to 2014, the plaintiffs say, no market maker besides Effex paid FXCM for order flow. These payments are dubbed to have been merely kickbacks of FXCM’s cut of profits generated by Effex from trading against FXCM’s retail customers. That is, the supposed “order flow” payments were merely disguised profit-sharing payments per FXCM’s arrangement with Effex.
In response, Israel Dahan, who represents the FXCM defendants, filed a declaration in October, with the exhibits attached to it including copies of the “Services Agreement”. The documents are dated March 1, 2010 and May 1, 2010. According to the defendants, the Services Agreement was a pay-for-flow agreement based upon trading volume—not a profit sharing agreement. They refer to the March 1, 2010 Services Agreement explicitly stating that “[Forex Capital Markets, LLC] shall receive from Effex a fee equal to $21.00 USD per one million units of Base Currency . . . for the aggregated volume of Transactions executed via the Trading System.” The May 1, 2010 Services Agreement is materially the same in every respect, except that FXCM Holdings, LLC is substituted for Forex Capital Markets, LLC, the lawyers for the defendants explain.
On Tuesday, November 14th, the plaintiffs sent a Letter Motion to Judge Ronnie Abrams asking for the documents attached as exhibits to Dahan’s Declaration to be disregarded. The plaintiffs argue that these documents should have been provided earlier, when FXCM’s lawyers filed their motion to dismiss. Moreover, the plaintiffs say that they are unable to submit other documents to prove the falsity of the documents submitted by the defendants.
Accordingly, the plaintiffs request that the Court strike or disregard the extraneous documents submitted by Defendants with the Declarations filed by Israel Dahan.
The “mega lawsuit” names Global Brokerage Inc (NASDAQ:GLBR), formerly known as FXCM Inc, and 17 individuals, including directors and senior employees at the brokerage accounting department, as defendants. They are accused of fraud, market manipulation and of filing false financial statements with regulators. This 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.
