FXCM Inc investor lawsuit faces further delay
The lawsuit brought by investors in FXCM Inc, now known as Global Brokerage Inc, is set for further delay, as the plaintiffs need extra time to prepare their responses to the motion for summary judgment submitted by the defendants in September.
Let’s recall that this action dates back to February 2017. This case stems from the events from February 2017, when FXCM reached settlements with the CFTC and NFA, in a move that led to its exit from the US retail FX market. The price of FXCM’s securities plummeted after the regulatory settlements were announced, thereby damaging investors in FXCM Inc.
The second amended complaint (SAC) alleged that the defendants were responsible for false or misleading public statements with respect to FXCM’s agency trading model and FXCM’s order flow relationship with one of its market makers, Effex Capital LLC.
The second amended complaint also alleged that FXCM’s financial statements were false and misleading because the company had not consolidated Effex as a variable interest entity (VIE), or, in the alternative, disclosed Effex as a related entity. The complaint also alleged that FXCM had failed to properly disclose investigations by the CFTC and NFA regarding the Company’s relationship with Effex.
On March 28, 2019, the Court granted Defendants’ Motion to Dismiss in part, dismissing Plaintiffs’ claims against Defendant Robert Lande, FXCM’s former CFO. The Court also denied in part Defendants’ Motion to dismiss but limited the time period for all of the misstatements alleged by Plaintiffs to reflect FXCM’s publicly announced termination of its order flow arrangement with Effex as of August 2014.
Plaintiffs’ surviving allegations regarding Defendants’ misstatements and omissions fall into three general categories:
- (1) misstatements concerning FXCM’s agency model;
- (2) misstatements regarding Effex’s order flow payments to FXCM; and
- (3) misstatements and omissions concerning GAAP violations.
In their motion and supporting documents filed with the Court on September 9, 2021, the defendants argue that, “after more than two years of discovery in which Defendants produced tens of thousands of documents and the parties deposed 18 witnesses, Plaintiffs find themselves no closer to having evidentiary support for their claims that Defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5”.
The defendants say:
“What started as a copycat action, parroting the CFTC’s and NFA’s allegations of regulatory violations, has reached a dead end….The discovery record is devoid of evidence demonstrating that Defendants made any alleged material misstatements, that Defendants did so with the requisite scienter, or that the alleged material misstatements caused damage to Plaintiffs”.
FXCM, Niv and Ahdout explain that, at its core, Plaintiffs’ action is based on the following premise: that Effex’s agreement to pay FXCM a fixed-dollar amount for order flow was really a profit-sharing agreement and that FXCM and Effex were virtually one and the same. This is simply incorrect, according to the defendants.
Regarding the alleged economic loss caused to the plaintiffs, the defendants explain that starting in January 2015, and after the alleged misstatement period, FXCM experienced dramatic changes in its business and financial condition unrelated to the alleged misstatements that dramatically affected the value of its securities. In particular, as a result of the SNB Flash Crash on January 15, 2015, FXCM customers with long positions in the euro/Swiss franc currency pair lost more than $275 million.
FXCM, in turn, faced a possible breach of its regulatory capital requirements, and to avoid liquidation it was forced to secure an emergency $300 million loan from Leucadia. Within days of the SNB Flash Crash and the Leucadia bailout, the price of FXCM’s common stock declined by nearly 90%, from $167 per share on January 15 to $16 per share on January 20, and the FXCM Notes traded substantially below par thereafter. And the price of FXCM’s Securities never returned to their previous trading levels during the Class Period.
Given all of these factors, it will be impossible for Plaintiffs to prove loss causation, the defendants say.
Further, the defendants argue that, given the dramatic decrease in the price of the FXCM Securities as a result of the SNB Flash Crash and Leucadia bailout, Plaintiffs fail to explain how the prices of those securities were still inflated as of February 6, 2017, especially given the lack of an alleged misstatement or omission concerning the period after August 2014.
In documents submitted at the New York Southern District Court on October 27, 2021, and seen by FX News Group, the parties request change of deadlines.
“In light of the length and complexity of Defendants’ motions, Plaintiffs require additional time for their responses”. Therefore, the parties request the following modifications to the schedule:
- The deadline for Plaintiffs to submit oppositions to Defendants’ Daubert and dispositive motions is extended from November 11, 2021 to December 9, 2021.
- The deadline for Defendants to submit replies in further support of their Daubert and dispositive motions is extended from December 13, 2021 to January 20, 2022.
This is the second request to modify the dates for the briefing schedule for Daubert and dispositive motions. The Court granted the previous modification request by entering the March 2021 Scheduling Order. The requested extension will not affect any other scheduled dates in this action.