Global Brokerage Inc, formerly known as FXCM Inc, Drew Niv and William Ahdout have failed to persuade the Court to review its summary judgment order. On October 31, 2022, Judge Ronnie Abrams of the New York Southern District Court denied a motion by the defendants in a securities class action to Certify the Court’s August 17, 2022 Order for Interlocutory Appeal.

Back in September, William Ahdout, Dror Niv and FXCM Inc, now known as Global Brokerage Inc, asked the New York Southern District Court to certify its order denying summary judgment on the issue of “loss causation” for immediate interlocutory appeal.

Ahdout, Niv and FXCM Inc are defendants in a securities class action arising from alleged misleading statements that FXCM made in public filings. The plaintiffs claim that FXCM misled investors because it failed to disclose a financial interest it held from 2010 to 2014 in Effex, a market maker that “won” the largest share of certain kinds of FXCM’s trading volume.

According to the plaintiffs, the truth of this financial relationship was revealed on February 6, 2017, three years after the relationship ended, when news that FXCM had entered into a settlement with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) relating to its relationship with Effex became public.

The Court denied summary judgment on August 17, 2022. The Court acknowledged that Plaintiffs have the burden to establish loss causation, and that Plaintiffs must “show that their loss was caused by the fraud and not by other intervening events.”

And the Court agreed that “to the extent Plaintiffs raise a ‘materialization of risk’ theory and characterize the risk as the risk of regulatory penalties, this theory fails.” The Court explained that “the risk must be concealed by the misrepresentations and omissions alleged” and that regulatory penalties were not a concealed risk under that theory as a matter of law.

The Court nevertheless declined to apply this reasoning to Plaintiffs’ “corrective disclosure” theory, which this Court understood to “argue that loss causation can be shown by the market reaction to the February 2017 announcements disclosing the alleged fraud.”

The Court acknowledged that Plaintiffs “have the burden to disaggregate losses caused by disclosures of the truth behind the alleged misstatements from losses caused by non-fraud-related factors.” But it decided that it would “allow a jury to decide whether or not [the regulatory penalties] are confounding events that needed to be disaggregated” rather than decide that question as a matter of law.

The defendants argued that whether a plaintiff may recover losses that result from regulatory penalties imposed on the defendant because of the alleged securities fraud is an important legal question that has significant implications for this case and other securities litigation. And notwithstanding the Court’s opinion, judges could disagree—indeed, have disagreed—with the Court’s answer.

FXCM Inc, Drew Niv and William Ahdout argued that the Court should certify its Order for interlocutory review.

On October 31, 2022, the Court disagreed with the defendants.

The Judge concluded that the defendants fail to meet each of the three prongs for certification. First, the issue of loss causation is not a “controlling question of law.” Second, Defendants have not identified a “substantial ground for difference of opinion” regarding the loss causation question.

Finally, the Court was not persuaded that an immediate appeal of the loss causation question would materially advance the ultimate termination of the litigation. Indeed, the Court noted, given that this trial is scheduled to begin in less than four months, the main effect of granting Defendants’ motion would be to materially delay, rather than materially advance, the ultimate termination of the litigation, which further weighed against granting defendants’ motion.