Effex Capital suffers heavy blow in NFA defamation lawsuit
Effex Capital, the company embroiled in FXCM’s exit from the US retail Forex market, has suffered a heavy blow in the Illinois Northern District Court. On July 14, 2022, Judge Andrea R. Wood ruled against the reopening of the defamation case launched by Effex against NFA.
Plaintiffs Effex Capital, LLC and John Dittami brought this action in 2017 against Defendants National Futures Association (NFA), James P. O’Hara, and Thomas P. Sexton, alleging that the defendants, as part of a disciplinary proceeding in which Effex was not involved, published false and defamatory statements about Effex and Dittami and disclosed their trade secrets without authorization.
The Illinois Northern District Court dismissed the case in 2018, finding that the plaintiffs failed to exhaust their administrative remedies prior to filing suit. That dismissal was affirmed by the Seventh Circuit on alternative grounds in 2019. At that time, the Seventh Circuit instructed Plaintiffs that they should have sought relief through the administrative process provided by the Commodity Exchange Act (CEA), 7 U.S.C. § 21 et seq., and overseen by the United States Commodity Futures Trading Commission (CFTC).
Having done so with an unfavorable result, Effex and Dittami moved to vacate this Court’s earlier dismissal and reopen the case.
The Judge noted that, in 2017, the NFA reached a settlement with one of its members, Forex Capital Markets, LLC (FXCM), and its managers as part of a disciplinary adjudication. To announce the settlement, the NFA issued several publications regarding the investigation and disciplinary adjudication.
According to the plaintiffs, those publications contained false and defamatory statements about their relationship with FXCM and revealed their trade secrets. In response, the plaintiffs filed suit in the Illinois Northern District Court, alleging that the publications damaged their professional reputations, resulted in lost business, and led to several lawsuits against them.
Seeking injunctive relief and monetary damages, Plaintiffs asserted federal claims for denial of their due-process rights and state-law claims for defamation, various business torts, and violations of the Illinois Trade Secrets Act. The District Court dismissed the suit on the grounds that Plaintiffs had failed to exhaust their administrative remedies.
The Seventh Circuit affirmed that dismissal on alternative grounds.
On January 18, 2022, Plaintiffs filed a motion, seeking to vacate this Court’s earlier dismissal and reopen the case.
As the Seventh Circuit explained, Plaintiffs’ only option to challenge the NFA’s decision was to follow the federally mandated review scheme established by the CEA. Under that scheme, they could first seek review by the CFTC and, if unhappy with that decision, appeal it to the appropriate Court of Appeals. However, rather than timely appeal the CFTC’s decision, Plaintiffs filed a motion to reopen their original case before the Illinois Northern District Court.
According to Plaintiffs, the CFTC’s ruling leaves them wholly without recourse for their claims. As it stands, that might be true. The Judge noted that rather than seeking to circumvent this outcome by trying to revive previously dismissed claims, Plaintiffs could, and should, have followed the process outlined by the CEA and appealed the CFTC’s decision to the Seventh Circuit.
The Judge said that Effex and Dittami may feel that this outcome is unjust or worry that it creates a loophole encouraging SROs like the NFA to commit bad acts against non-members. But Plaintiffs’ disappointment does not constitute “exceptional circumstances” justifying the grant of a Rule 60(b) motion.
Accordingly, Plaintiffs’ motion to vacate the prior ruling and reopen the case was denied. The case remains closed.