The New York Southern District Court has preliminarily approved a $6.5 million settlement in a securities class action brought by FXCM Inc stockholders. The relevant order was signed by Judge Ronnie Abrams on February 21, 2023.

Plaintiffs and defendants Dror Niv and William Ahdout have agreed to settle this action for $6,500,000.

The Court finds that (a) the Stipulation of settlement resulted from good faith, arm’s-length negotiations, and (b) the Stipulation is sufficiently fair, reasonable, and adequate to the Class Members to warrant providing notice of the Settlement to Class Members and holding a Settlement Hearing.

The Court preliminarily approved the Settlement, subject to further consideration at a hearing pursuant to Federal Rule of Civil Procedure 23(e), which is scheduled to be held before the Court on July 7, 2023 at 3:00 p.m.

Pending final determination of whether the Settlement should be approved, all Releasing Parties shall be enjoined from commencing, prosecuting, or attempting to prosecute any Released Claims against any Released Party in any court or tribunal or proceeding. Unless and until the Stipulation is cancelled and terminated pursuant to the Stipulation, all proceedings in the Action, other than such proceedings as may be necessary to carry out the terms and conditions of the Stipulation, are stayed and suspended until further order of the Court.

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 brought 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.

The Settlement provides for a Settlement Fund of $6,500,000 in cash. Plaintiffs’ damages expert estimated maximum aggregate damages of $17.5 million in Plaintiffs’ best-case scenario.