Global Brokerage, investors close to resolving issues concerning class action settlement
Global Brokerage Inc, formerly known as FXCM Inc, and the plaintiffs in a securities class action are close to resolving all major issues concerning a settlement. This becomes clear from a letter filed by the parties in this action on January 19, 2023.
The parties request a one-week extension, until January 27, 2023, for the filing of the Stipulation of Settlement and a motion for preliminary approval of the settlement. The current deadline is January 20, 2023. Although the parties have worked diligently and are close to resolving all major issues concerning the settlement, additional time is needed to finalize the settlement documentation.
The securities class action against Global Brokerage, Inc. formerly known as FXCM, Inc., Dror Niv, and William Ahdout, has been stayed since December 23, 2022 because of the parties’ agreement in principle to settle this action.
Let’s recall that, the plaintiffs in this lawsuit include (inter alia): Lead Plaintiff 683 Capital Partners, LP and Class Representatives Shipco Transport Inc. and E-Global Trade and Finance Group, Inc.
The plaintiffs bring claims against FXCM, Dror Niv, and William Ahdout under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b- 5 promulgated thereunder. Shipco and E-Global bring claims on behalf of themselves and a certified Class comprising “all persons and/or entities that purchased or otherwise acquired publicly traded Global Brokerage, Inc., f/k/a FXCM Inc. (“FXCM”) Class A common stock, during the period March 15, 2012 through February 6, 2017, both dates inclusive.” 683 Capital brings its claims on an individual basis.
The plaintiffs alleged the defendants committed securities fraud by misrepresenting and omitting material facts about FXCM’s secret relationship with Effex Capital, LLC. FXCM offered foreign exchange trading to retail customers, touting their “No Dealing Desk” or “agency model,” where instead of FXCM trading directly opposite the customer, FXCM connected the customer with a liquidity provider offering the best price, with FXCM merely adding a mark-up to the price as a commission.
However, according to the plaintiffs, unbeknownst to FXCM’s customers and investors, FXCM was secretly receiving kickbacks of roughly 70% of the trading profits from Effex, one of FXCM’s primary liquidity providers who was trading against FXCM’s customers.
According to the plaintiffs’ complaint, Effex was run by John Dittami, whom Defendants Niv and Ahdout hired at FXCM to create an internal trading system, EES, that would compete with external market makers. Dittami’s contract with FXCM provided for a 70-30 split of EES’s trading profits (70% to FXCM). When FXCM’s compliance department decided that FXCM could not truthfully say it was operating an agency model if EES was trading against FXCM’s customers, Defendants decided to spin off EES as Effex. However, FXCM and Effex kept the 70-30 split of trading profits—with Effex swapping in for Dittami and FXCM keeping its 70% share—which they disguised as “payments for order flow.” FXCM provided critical support to Effex for years, and Effex relied on FXCM to stay afloat.
Effex became one of FXCM’s biggest liquidity providers and Defendants provided special trading advantages to direct more of FXCM’s trading volume to Effex.
In 2013 and 2014 the National Futures Association (NFA) and the U.S. Commodities Futures Trading Commission (CFTC) began investigating FXCM’s relationship with Effex. On February 6, 2017, after the close of trading, the NFA and CFTC announced regulatory settlements with the defendants, revealing the undisclosed relationship between FXCM and Effex and imposing severe penalties. The next day, the price of FXCM securities dropped precipitously, harming Plaintiffs and the Class.