The securities class action targeting Global Brokerage Inc. formerly known as FXCM Inc., Dror Niv, and William Ahdout, nears trial.

On December 14, 2022, the defendants in this acton, submitted several documents outlining their requests regarding evidence to be used at trial.

The documents, seen by FX News Group, make it clear that FXCM wants to preclude the plaintiffs from introducing at trial certain evidence and argument regarding FXCM’s prior regulatory settlements with the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA).

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.

At trial, the plaintiffs will try to prove that 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.

Now, FXCM wants the settlements with NFA and the CFTC not to be used at trial.

In their effort to prove their securities fraud claims, Plaintiffs apparently intend to introduce at trial the no-admit regulatory settlements FXCM entered into with the CFTC and NFA in February 2017 and use the allegations and findings set forth therein as evidence and proof of actual wrongdoing by FXCM.

The defendants say the plaintiffs should be precluded from reading to the jury any of the allegations in the NFA Complaint or findings contained in the no-admit CFTC and NFA Orders because it is not admissible evidence and would violate nearly every evidentiary concern that Federal Rule of Evidence 403 was designed to avoid.

According to the defendants, this would unfairly prejudice them, confuse and mislead the jury into thinking those unadjudicated allegations and purported findings should be viewed as established facts, and require Defendants and the Court to needlessly spend time explaining to the jury why those allegations and purported “findings” should not be viewed as established facts.

FXCM concludes:

“The reality is that Defendants do not need to admit the CFTC and NFA Orders into the record because they can establish the existence and terms of the regulatory settlements in other ways, including by relying on the parties’ stipulated facts concerning the settlements or the CFTC and FXCM press releases announcing the settlement terms”.